Inside the bittersweet “record” economic growth figures
Mbongeni Mguni | Monday June 6, 2022 06:00
Cynics of economic growth figures frequently cite the quote made famous by US literary legend Mark Twain: “'There are three kinds of lies: lies, damned lies, and statistics”.
When Statistics Botswana recently announced that the local economy had expanded by 11.4% last year, the fastest growth since 1989, many cynics felt the data agency was either fiddling with the numbers or conveniently ignoring the troubles ordinary Batswana have been experiencing in recent years.
Statistics Botswana, which recalibrated or rebased its economic figures last year for greater relevance, stands by its numbers, which indicate that with the exception of two sectors, activity was improved across the various economic sectors in 2021, compared to the record contraction 2020.
For prominent economist, Sennye Obuseng the strong growth seen last year represents the return to work of capacity that had been idle.
“It does not represent incremental capacity,” he explains.
“What should excite is that it is a strong rebound from a deep recession which is important because sometimes loss can entail a certain permanence about it and if you lose something, you want to be able to recover as quickly as possible.
“What’s happening is that the economy is working its way back to its trend path but it is not back to where it was in 2019 before COVID-19 arrived.”
The question of whether the economy, after its rebound last year, has returned to its pre-pandemic level, is key not only for economists but ordinary Batswana who have seen their incomes, livelihoods and opportunities overturned by COVID-19.
According to Dr Lovemore Taonezvi, economist at BA ISAGO University’s Faculty of Commerce, the answer depends on whether one looks at nominal or real Gross Domestic Product (GDP). GDP in its simplest definition is the measure of a country's output in a year and is the indicator Statistics Botswana uses to gauge whether the economy is growing or expanding from year to year.
Because nominal GDP includes current prices in a given year, when inflation rises in that period, this tends to make growth appear higher. Real GDP adjusts for inflation and uses a base year for prices, which Statistics Botswana has set as 2016.
Data agencies such as Statistics Botswana report both nominal and real GDP in order to better reflect trends in the year under review and trends across the years.
Taonezvi compared the nominal and real GDPs using the per capita indicator, which estimates the economic output per person. According to the economist, in 2019, that is before the pandemic, the nominal GDP per capita and real GDP per capita figures were P77,288.50 and P79,088.30 respectively while for 2021 they are P81,023.10 and P77,495.10.
“The real GDP capita figures show that the economy is not yet back on track although in nominal terms it seems to have gone back on track,” he says.
“The higher nominal GDP per capita figure in 2021 indicates the rise in inflation as demand increased due to the opening up of economic activities as COVID-19 was now under control mostly due to the rising vaccination rates.”
Consumers, the unemployed and those living hand to mouth in an environment of escalating inflation and few opportunities believe even if the economic numbers are correct, economists are focussing on the wrong measurement of living circumstances.
The data agency has other figures which should be read together with last year’s record rebound in order to give a better picture of the situation ordinary households are in.
For instance, Statistics Botswana has data on inflation which show that the prices of goods and services in the economy have been hovering at nine-year highs in recent months, eating away at whatever resilience Batswana had after the record economic collapse of 2020.
The latest data from Statistics Botswana shows that average food and non-alcoholic beverage prices have risen by about 14% in the 24 months to April 2022, with cooking oil and fat prices in particular rising 46% over that period. An indicator known by the data agency as the cost “operating a personal vehicle” which covers fuel prices, has risen by nearly 40% over the same period.
Statistics Botswana also has data indicating that the unemployment rate for those aged 18 and older rose from 21.9% in December 2019, to 24.5% in December 2020 and 25.8% in December 2021. In actual numbers, these percentages represent 208,171 people, 237,225 people and 249,171 people.
The data agency is also updating its figures on poverty trends around the country, but as at September 2019, its researchers estimated that about 58% of the local population was dependent on one government safety net or the other. In actual numbers, that percentage refers to 387,503 households across the country.
COVID-19 is likely to have further worsened this situation, at a time when government was restrained from providing better assistance due to the impact of the pandemic on the budget.
Economists at the International Monetary Fund (IMF) hinted at the debate between rosy growth figures and the experience of ordinary households.
“Despite the strong outlook, long-standing challenges remain,” the researchers wrote in a report.
“Unemployment rose to 26 percent in 2021, while poverty and inequality have also increased.
“Inflation exceeded the central bank’s medium-term 3-6 percent objective range in 2021 and increased sharply in the first months of 2022.”
The perennial challenge of inequality is particularly rankling for Batswana, many of whom believe even as the numbers show that the economy is returning to a growth trajectory, the positive outlook will leave them behind. The picture many draw is of a great beast rising from its slumber but shaking off the “dust” it has been resting on.
Figures from another data agency support these fears, as the World Inequality Lab estimated that in 2021, the richest one percent of people in the country earned more than 20 times the average income of the rest of Batswana. While the Lab’s researchers estimated that to be in the top one percent of income earners in Botswana last year, you had to earn at least P142,601 per month before tax, Statistics Botswana in December 2021 estimated the average income of the formal sector worker at P6,299 per month.
The dreams of those occupying the bottom rungs of the country’s earners are captured in the National Vision 2036 which seeks to transform the country into a high income economy.
For Obuseng, the 11.4% growth of 2021 is not a factor in the achievement of Vision 2036.
“What we need for any chance of achieving our long term goals in relation to jobs or employment creation is a sustained growth rate of about six to eight percent,” he says.
“For any chance of dealing with unemployment and poverty, we need real GDP of that much and we fell far short of that during the National Development Plan 11.
“For us to ramp growth up, we need to deliberately make investments and adjustments to the way we do things that will see us improve competitiveness and for us to improve that, we need to increase productivity.
“We need to make the type of investments that transform our productivity and competitiveness to export more, out-compete imports in the local economy and employ more people.
“It’s a question of improving the level of efficiency in the economy.”
Obuseng argues that the “atmosphere for doing business has been polluted by governance and political related issues".
“There’s no magic wand that the Finance Minister and others can wave to make the economy work where we see governance issues happening as they are today.
“The business environment requires clear commitment to the rule of law and we are seeing too much that will pollute it and suppress investor interest.
“Also, we must be wary about service quality, security and many other issues.
“That’s the first step to achieving the Vision 2036 goals.”
For Taonezvi, the path to sustainable growth requires government to intensify its efforts to diversify the economy in order to reduce its susceptibility to external shocks, especially those related to diamond trading.
“There is a need to utilise opportunities in agriculture, fish farming, information and technology and financial services among others,” he says.
“Recently, owing to the Russia-Ukraine war, new opportunities for the exportation of coal have emerged in the form of increased demand for the 'black diamond' in the face of decreasing supply of oil.
“Considering that Botswana has enormous deposits of coal, there is a need to improve the mining of coal and its distribution channels so that it can profitably reach Europe and China where its demand is soaring.”
Meanwhile, for households, the immediate threat is that the prices of goods and services will continue to rise beyond their reach, while wages and job opportunities remain below trend, as companies have not fully shaken off the impact of the pandemic. Because much of the record growth in 2021 was around mining and diamonds in particular, employers in other key sectors of the economy have not rebounded as much.
Economists also agree that inflation is a key indicator to watch for this year, especially due as Russia’s invasion of Ukraine has triggered an uptrend in food and fuel prices.
“Forecasts are showing that inflation is likely to remain elevated in 2022 therefore further policy tightening, particularly deeper into the year, cannot be excluded,” says Absa Botswana economist, Naledi Mdala.
“The non-mining sector’s recovery could be impacted by higher inflation, largely driven by higher food and fuel costs, and tighter monetary policy.”
Tighter monetary policy, a scenario also mentioned by the IMF, has already come to bear on households via the recent increase in interest rates by the Bank of Botswana. Experts at Kgori Capital expect that rates could further be increased before the end of the year.
While economists watch the numbers and trends, households will be watching the price tags, as well as the notices from employers, recruiters, private schools, landlords and government, which has embarked on an exercise to revise its fees for various services.