2020 Budget Speech [full text]

Thapelo Matsheka PIC. THALEFANG CHARLES
Thapelo Matsheka PIC. THALEFANG CHARLES

2020 Budget Speech by Dr. Thapelo Matsheka, minister of Finance and Economic Development

I.            INTRODUCTION
 
1.            Mr. Speaker, I have the honour this afternoon to present to the National Assembly the Budget Proposals for the Financial Year 2020/2021.
 
2.            Mr. Speaker, as this is my maiden Speech to this House as the Minister of Finance and Economic Development and as a Member of Parliament for Lobatse, allow me to first pay tribute to my late parents, Mr. Collins Olefile Matsheka and Mrs Patricia Joalane Bellina Matsheka. May their soul rest in eternal peace. Mr. Collins Matsheka worked for the Government of Botswana, as a civil servant in the Ministry of Agriculture, while Mrs Patricia Joalane Bellina Matsheka who was a teacher, had to resign from her teaching post in Mochudi to look after my sisters, and I, for which we will forever be grateful.
 
3.            Mr. Speaker, great men have stood here to deliver budget speeches in the same capacity as myself. I would like to acknowledge their contribution to the prudent stewardship of the finances of this country. To them I say, “thank you for your contribution and the foundation you have laid for all of us to follow”. To my immediate predecessor, Mr. Kenneth O. Matambo, on behalf of Government and the Ministry, I wish to say “thank you for your dedicated service to the country, including many years, as a civil servant and public officer”.
 
4.            Mr. Speaker, I wish to further thank the voters who have demonstrated continued confidence in the Botswana Democratic Party (BDP) to lead this country and transform it from the current upper middle income to high income status, as indicated in the BDP Manifesto. Mr. Speaker, I wish to congratulate His Excellency The President, Dr. Mokgweetsi Eric Keabetswe Masisi for his victory and leadership, and forming a Government to lead Botswana in the next five years.
 
5.            Mr. Speaker, this Government is committed to transforming the economy through, refocusing existing policies, strategies and programmes, such as: service delivery through ICT; creating sustainable jobs; fighting corruption; improving education and training; providing quality health care; and attracting local and international investors, in order to create an inclusive economy with greater citizen participation. The focus, Mr. Speaker, is to improve efficiency in Government spending and delivery of services to promote the growth of the private sector to transform our economy to higher income status.

6.            Mr. Speaker, the preparation of this budget, which is the fourth in the current National Development Plan (NDP) 11 period, was largely guided by emerging strategic issues from the ongoing review of NDP 11, which report I will be tabling during the current meeting of the National Assembly. Mr. Speaker, the annual budget speeches serve as progress reports towards the attainment of the goals and objectives contained in the medium plan, such as the NDP 11, which, in turn, constitutes the building blocks towards the achievement of Vision 2036.
 
7.            Mr. Speaker, each year Batswana look forward to hear from all those who have stood at this podium; not only how Government is spending their taxes, but also whether they stand to benefit from the initiatives proposed in these Budget Speeches. I am therefore, consciously subjecting myself to that test Mr. Speaker.
 
8.            Mr. Speaker, the proposed initiatives in this year’s Budget are guided by the country’s Vision 2036, which is the primary and guiding document for the future of our nation. This Vision is for a Botswana that achieves a high-income status by the year 2036. Mr. Speaker, the Vision sets high and ambitious targets for all stakeholders to move the country forward. It calls for a review of operational plans and strategies for national economic and social development. Hence, the Vision is about a transformed Botswana.
 
9.            Transforming Botswana from one status to the other is not new, Mr. Speaker. This BDP Government is responsible for transforming the economy from the birth of our democracy and country in 1966, when Botswana was classified as a low-income country, and transformed it to a middle-income economy by the early 1980s. The same Government transformed this economy to an upper middle-income status in the 1990s. This has happened despite the enormous challenges presented by the world economic collapse of 1998 and the global financial and economic crisis of 2008/2009. At present, our major objective is to transform this economy to a high-income status by the year 2036.
 
10.       I must add, Mr. Speaker, that no other party in this country has the experience to transform the economy, hence, the voters’ wisdom to entrust this important task to this Government. And this Government will not disappoint; but do it again.

11.       Mr. Speaker, the transformation journey to higher-income status will commence with this 2020/2021 Budget and continue to be perfected in the ongoing preparation of the MTR of NDP 11. Some of the preliminary indications from the review are that; economic performance was in line with the original NDP 11 projections, while economic diversification progressed fairly well during the first half of NDP 11. The share of the non-mining private sector in value added terms rose to 66 percent in 2018, compared to 63 percent in 2015. The sectoral pattern of growth also showed that the services sectors of Transport & Communications, Trade, Hotels & Restaurants, and Finance & Business Services were the fastest growing sectors.
 
12.       Mr. Speaker, successful economic diversification requires an economic growth rate that is high enough to generate sufficient jobs to address unemployment, raise household incomes and reduce poverty. This has not yet been achieved and the unemployment rate has remained a cause for concern, at annual rate of 17.6 percent of the labour force in 2015/16, according to data from Statistics Botswana. Therefore, accelerated growth, consistent with Vision 2036, will require a mix of policies that promote export diversification in goods and services to impact unemployment, especially among the youth.
 
13.       Mr. Speaker, Statistics Botswana recently released its first ever quarterly labour force survey results for the three months of July to September 2019, which show an unemployment rate of 20.7 percent for that quarter. These results are for one quarter only and are subject to seasonal variations. It is therefore important to note that the unemployment rate of 20.7 percent for the quarter cannot be directly compared with the 17.6 percent annual rate for 2015/2016.
 
14.       Mr. Speaker, according to the MTR of NDP 11, the country’s fiscal position has experienced large deficits, as Government continued to invest in economic and social infrastructure such as in education and health facilities. However, the outcomes of the sectors remained below expectations. Mr. Speaker, the transformation programme requires a fresh look at the economic and social returns to this level of investment, not only in the identified areas, but across the economy.

15.       Mr. Speaker, the MTR of NDP 11 has identified critical issues that Botswana confronts as we move into the second half of NDP 11. These include: the need for economic transformation; macroeconomic stability; greater socio-economic inclusion; improved quality of public services; the changing world of diamonds; and climate change. In order to align the national policy priorities with the emerging critical issues, four national policy priorities are proposed for the remainder of NDP 11.
 
16.       The first priority is Promotion of export-led growth. The objective is to ensure that the drivers of economic growth in Botswana shift towards export promotion. This, Mr. Speaker, will address the balance of payments problem, which has emerged in recent years as a constraint to economic growth. As a result, greater effort is required in implementing the country’s Export Strategy, since increased exports of goods and services do not only contribute to growth, improved balance of trade position; but are necessary for replenishing the country’s foreign exchange reserves.
 
17.       The second is Ensuring more efficient government spending and financing. Mr. Speaker, for the past four years, the economy has experienced a less favourable fiscal position. This is a priority for my Ministry as well as the whole of Government. It requires that we ensure that spending is as efficient as possible in order to return to a sustainable fiscal pathway. The proposed measures to be implemented include: improving appraisal, design, costing and implementation of public sector investment projects; careful scrutiny of subsidy schemes, and termination of those that do not address market failure or assist truly needy Batswana; and, clamping down on corruption and waste. Mr. Speaker, it will also include re-prioritisation of approved projects and programmes to align them with emerging transformational needs. It cannot, Mr. Speaker, be business as usual.
 
18.       The third is Building human capital. Mr. Speaker, I have made mention of ensuring value-for-money in education spending. The Government remains committed to improving human capital skills and knowledge as they are critical inputs to private sector development and industrialisation. In addition to availing financial resources towards the building of human capital, more measures will be taken to reform the entire education sector, as part of the transformation agenda.

19.        The fourth pillar is the Provision of appropriate infrastructure. Mr. Speaker, the availability of appropriate infrastructure is critical for enhancing efficiency and providing the gateway for private sector participation. To achieve this, Government will, starting with this financial year, prioritise provision of infrastructure that has the highest potential to increase productivity in key economic sectors to drive transformation. The infrastructure provision will recognise the dire need for investment to promote a cluster development approach as approved in the Special Economic Zones Policy.
 
20.       Mr. Speaker, the transformation agenda or journey will not spare any institution. It is a call on all stakeholders to live the ideals of Vision 2036 and, each and every institution will have to play its part in contributing positively towards attaining these four priority areas that I have just outlined. By design, these priority areas are premised on a private sector driven economy that will deliver on jobs, equitable income distribution and poverty alleviation.
 
 
II.                  ECONOMIC REVIEW AND OUTLOOK
 
21.       Mr. Speaker, the Budget Proposals for the Financial Year 2020/2021 are presented against the backdrop of continued uncertainty in the global economy, with adverse implications on the domestic economy. As a small open economy, the continued tension between the United States of America and China, who are the two major markets for our diamond exports, continues to undermine the country’s economic performance in general, and the fiscal position in particular. It also heightens the need for measures to promote diversified exports to reduce the impact of external shocks on the domestic economy.
 
22.       Mr. Speaker, the World Economic Outlook report of January 2020 by the International Monetary Fund (IMF) has revised global economic growth to 2.9 percent in 2019, from 3.6 percent in 2018. Such a rate of growth is considered the lowest since the 2009 global financial crisis. Mr. Speaker, global growth is expected to be moderate in 2020, with the world economic forecast expected to pick up to 3.3 percent, driven by expected growth in both emerging and developing economies. Growth in advanced economies is projected to remain subdued.

23.       Mr. Speaker, the domestic economy continues to record positive growth rates, despite the challenges arising from a weak and uncertain global economic environment. The domestic economy is estimated to have grown by 3.6 percent in 2019, and to reach 4.4 percent in 2020, driven by faster growth in the services sector.
 
24.       Mr. Speaker, as part of the transformation agenda, Government will be refocusing attention to the agriculture and manufacturing sectors during the MTR of NDP 11, as these sectors have the potential to; boost economic growth, promote exports development, create job opportunities, and reduce poverty. In this connection, a review of programmes and subsidies will be performed to align them with the transformation agenda and ensure that they contribute to greater private sector participation.
 
25.       Mr. Speaker, monetary policy remained accommodative during the past year, as inflation was within the Bank of Botswana medium-term objective range of 3 – 6 percent. The outlook for domestic inflation is stable within the Bank’s objective range in the medium term, due to moderate domestic demand pressures and modest increase in imported inflation. This, Mr. Speaker, requires efficient public spending to spur private-sector led growth, which is fundamental to getting the economy to operate at full potential.
 
26.       Mr. Speaker, over the past years, the performance of the Pula exchange rate has been consistent with the country’s exchange rate policy objective of maintaining competitiveness of the country’s industries in both domestic and international markets. This is achieved through the operation of a basket mechanism, wherein the main variables are currency weights and a rate of crawl.
 
27.       Mr. Speaker, the currency basket weights are based on the country’s trade pattern (exports and imports), while the annual rate of crawl is based on the projected inflation differentials between Botswana and its major trading (for both exports and imports) partner countries. An annual review of these parameters is, therefore, in line with the policy of maintaining a competitive exchange rate environment to support the transformation agenda; rather than an act of devaluation or revaluation of the exchange rate.

28.       Mr. Speaker, the preliminary balance of payments for 2019 indicates a deficit of P10 billion, following a lower deficit of P4.2 billion in 2018. The deficit was due to a significant increase in imports, compared to exports. Therefore, more needs to be done to promote the growth and diversification of the country’s export base and this will be intensified, focusing on agriculture and manufacturing value chains.
 
29.        To this end, Mr. Speaker, the transformation programme requires a review of the country’s entire ecosystem for promoting exports, including regulatory environment, fiscal incentives, and provision of basic infrastructure. On the other hand, growth in imports has continuously outpaced that of exports in recent years, resulting in trade deficits. To reverse this trend, measures will also be required to reduce on imports through the implementation of a robust import substitution strategy.
 
30.       Mr. Speaker, this country imports most of its requirements, including basic products that do not require huge investment to produce locally. Using Government’s purchasing power through programmes such as the Economic Diversification Drive (EDD) and citizen empowerment initiatives, additional measures will be put in place to ensure reduction in the country’s import bill. It is only through a deliberate and vigorous implementation of the Export Strategy and Import Substitution Strategy that the country can restore its external balance and create the jobs that are required in an inclusive economy, in which Batswana are major players.
 
31.       Mr. Speaker, the country’s negative external balance in recent years has undermined the growth of the country’s foreign exchange reserves. As at the end of November 2019, foreign exchange reserves amounted to P70.6 billion, a decrease from P74.5 billion in November 2018. The foreign exchange reserves are equivalent to 14 months of import cover of goods and services. Of the total amount of foreign exchange reserves recorded in November 2019, Government Investment account stood at P16.3 billion, compared to P26.7 billion in November 2018, indicating the impact of government spending on the foreign exchange reserves. The remainder of the reserves are for the rest of the economy, being the private sector and individuals.

Performance of State-Owned Enterprises

32.       Mr. Speaker, State Owned Enterprises (SOEs), or parastatal organisations, as they commonly are referred to in this country, are part of Government’s delivery system. As such, they are very critical to the transformation agenda. There are currently over 60 SOEs in the country, ranging from regulatory through academic to commercial ones. To transform this country, the role of these SOEs will have to be revisited in order to align them to the transformation agenda.
 
33.       Mr. Speaker, when establishing these organisations, Government had specific developmental goals to achieve, which it was felt could be achieved better and much more efficiently through the alternative delivery model of parastatal, instead of the public service. However, the performance of some of these organisations indicate that; either this original assumption was wrong, or there has been some creep in their mandates over time. Whatever the case may be, there is need to revisit most of the mandates and founding statutes of these organisations to address the governance and performance of some of them, and more importantly, align them to the transformation agenda.
 
34.       To this end, Mr. Speaker, a subcommittee of Cabinet, which I chair, will undertake a comprehensive review of the parastatals’ landscape. The terms of reference of this subcommittee are broad to cover the review of the mandates, governance, and performance of these organisations, with a view to proposing specific recommendations to Government on the relevance of some of these organisations and their financial sustainability. It is important that the mandates of these organisations are repositioned to support the transformation journey.
 
 
35.        Regarding the performance of the country’s parastatal organisations in 2018/2019; it was rather mixed. Some registered positive results, while others continue to make losses. Among those which performed satisfactorily are: Botswana Telecommunications Corporation Limited (BTCL), Water Utilities Corporation (WUC) and the Botswana Power Corporation; though the latter continues to receive substantial subvention from Government. On the other hand, some parastatal organisations continued to register losses in 2018/2019, which included Air Botswana (AB), Botswana Meat Commission (BMC), National Development Bank (NDB) and Botswana Railways (BR). Mr. Speaker, you will notice that the performance is narrowly focused on financial performance, even when these organisations have not achieved or met the delivery of projects for transformation and high income status.


36.        Mr. Speaker, Government spends substantial resources on parastatal organisations in the form of subventions or grants. For instance, an amount of P4.9 billion is proposed as subventions to various state owned enterprises for the Financial Year 2020/2021. It is, therefore, important that these resources be used efficiently to contribute to the transformation agenda. In this regard, Government through the Cabinet subcommittee will be interrogating the efficient use of public resources deployed to these organisations and provide value-for-money to the tax payer. In addition, Government will develop standards of benefits across the public sector, including SOEs, in order to curb wastage.
 
37.       Mr. Speaker, the subcommittee will review the role of the SOEs in the transformation process along strategic intervention areas such as: (i) utility supply (BPC, WUC); (ii) tourism (Botswana Tourism Organisation); (iii) transport(Botswana Railways, Air Botswana); (iv) agriculture (NDB, BMC, BVI, BAMB); (v) ICT and innovation (BTC, BOFINET, BIH, BITRI); (vi) business development (CEDA, LEA, BDC, BITC); (vii) regulation (BOCRA, NBFIRA, BOBS, BERA, CAAB), and (viii) human capital development (UB, BUAN, BUIST, HRDC, BQA).
 
38.       Mr. Speaker, the reform of parastatals alone will not allow for growth and realisation of the transformation agenda. The parent Ministries, and Government in general, will have to demonstrate reform of their internal processes to support transformation. The transformation requirement is for all institutions of this economy, including the private sector.
 
39.       Mr. Speaker, Government will take bold decisions on the reform of the state-owned enterprises during the course of the next financial year, following the recommendations of the Cabinet subcommittee. However, given the depressed state of two of the parastatal organisations; the Botswana Meat commission (BMC) and the National Development Bank (NDB), Government has had to take immediate decisions. The Botswana Meat Commission, which provides a market to cattle farmers, is technically insolvent, despite Government’s recent capital injections of close to a billion Pula.

40.       Mr. Speaker, in order to address these challenges, Government has taken a decision to engage a management company to take over the running of the BMC with effect from April 2020. This measure is intended to protect the interest of all stakeholders, including farmers. More details on the matter will be provided by my colleague the Honourable Minister of Agriculture Development and Food Security in the presentation of his Committee of Supply Speech later to this House.
 
41.       Mr. Speaker, Government is proceeding with the conversion of the Botswana Meat Commission (BMC) into a company under the Companies Act, with the approval of the BMC Transition Bill by Parliament in August 2019 and subsequent repeal of the BMC Act. The repeal of the BMC Act eliminates BMC’s monopoly on the export of beef and cattle. It also entails the establishment of a meat regulator, which is at an advanced stage, to ensure transparent and fair trade in the industry and create an opportunity for more efficient and capable players contributing meaningfully to the sector. Another aspect of the transition is the ultimate privatization of BMC. The objective of the privatization of BMC is, among others, to engage the private sector in the ownership and management of the BMC to achieve operational efficiency and profitability, as well as reduce Government’s future financial commitments in the entity. This would be an important process in the transformation of the beef and cattle sector.
 
42.       Mr. Speaker, the other parastatal that requires immediate attention is the National Development Bank. In response to the persistent underperformance by the NDB, my Ministry engaged the African Development Bank in 2018 to undertake a diagnostic analysis of the challenges besetting the Bank. A report has since been submitted by the African Development Bank (AfDB), which contains specific recommendations on turning around the performance of NDB. Government has since tasked the NDB Board with the responsibility to implement the AfDB Report recommendations with immediate effect and with expected tangible results in the next two years.
 
III.               STRATEGIC INTERVENTIONS FOR TRANSFORMATION IN 2020/21
 
43.        Mr. Speaker, our national Vision envisages a Botswana transformed from the current upper middle income to high income by 2036. This means that the country’s per capita income should exceed USD12 000, in current prices, by the year 2036; up from the current level of around USD 8 000. With only sixteen (16) years left to reach the year 2036, to achieve this level of per capita income will require that the domestic economy grows by an average of, at least, 6 percent per annum, against the current projected average growth of 4 percent. Growing the economy by 6 percent per annum, over the next sixteen years, will require the implementation of robust policy measures. I repeat, Mr. Speaker, it cannot be business as usual.

44.       Mr. Speaker, these transformation measures are grouped into two categories of: Growing the Economy for Job Creation; and Social Programmes to Sustain Livelihoods. Underlying the implementation of these policy measures are the following principles: improving on regulatory efficiency to support private sector growth; improving efficiency of government spending; reducing the size of government in the economy to create space for the private sector; and improving on human skills to support the transformation agenda.


Growing the Economy for Job Creation

45.       Mr. Speaker, the 2020 Budget Proposals are a first deliberate effort to align to the transformation agenda, with a focus on the promotion of private sector-led growth and job creation. Hence, the focus on the following areas: investing in economic infrastructure; developing human capital; developing a vibrant agricultural sector; promoting citizen economic empowerment; investing in the creative industry; and promoting an export-led economy.


Investing in economic infrastructure to support transformation

46.       Mr. Speaker, to achieve the level of growth needed to move this country from the current middle-income trap, there is need for continued investment in appropriate infrastructure, which is critical in enhancing productivity and economic growth. In this regard, Government expenditure on infrastructure will target economically viable projects to support private sector-led development. The key infrastructural needs for transformation include; electricity/energy, water, rail/roads and technology.

47.       Mr. Speaker, as a demonstration of Government’s commitment to infrastructural development, and as promised in the ruling party’s manifesto, over half of the Development Budget for 2020/2021 is proposed for the following economic sectors: Water allocated P1.372 billion; Transport allocated P1.3 billion; Agriculture allocated P862 million; ICT allocated P823 million; Land Servicing allocated P541.5 million; and Energy allocated P521 million.
 
48.       Mr. Speaker, my Ministry will revisit the process of delivering public infrastructure through the Public Private Partnership (PPP) model. Two specific interventions in this regard during the Financial Year 2020/2021 will be; the promulgation of the PPP procurement law, which is at an advanced stage, and the development of a strategy for financing mega projects such as roads, rail and ICT, which will form the basis for mobilising resources from development partners, including the private sector, to accelerate the pace of infrastructure development.
 
49.       Mr. Speaker, information communication and technology (ICT) is critical in driving economic transformation. But leveraging on ICT for the digitization of the economy requires its faster adoption. To this end, Mr. Speaker, and as part of the efforts to expand access to the broadband internet services, Government, through BOFINET, started rolling out Fibre-To-The-Business and Fibre-To-The-Home this financial year in Gaborone, and will be extended to other parts of Botswana. Government will also capitalise on the demand for digital skills by focusing on implementation of e-services across its delivery models, as part of the fourth industrial revolution.
 
50.       Mr. Speaker, Government has engaged the United Nations Conference on Trade and Development (UNCTAD) to develop the National E-Commerce Strategy, which will be in place by June 2020. The overall objective of the Strategy is to promote the diffusion and use of e-commerce throughout Botswana’s commercial and public spheres. The
Strategy will enhance efficiency and further serve as a framework and guiding tool in facilitating e-commerce across all sectors of the economy.

 

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