The high-income dream is just a mere dream

Lewanika Timothy | Monday November 20, 2023 06:00

But as the Biblical manuscripts rightly point out: who builds a house without first considering its cost?

To reach the status of a high-income economy, Botswana will have to significantly increase its wealth levels, a near doubling in Gross National Income per capita (GNIpc), to reach the World Bank threshold of $13,205. In 2021, Botswana’s actual GNIpc was $6,610 and current GDP figures are generally trending downwards quarter-on-quarter as the economy settles deeper into economic stagnation.

As the sand falls through the hourglass, the thick dark clouds of weakening economic prospects keep getting worse, with Botswana’s economy slowing down quarter on quarter crippled by a vast array of external shocks. For the financial year 2023–2024, GDP growth forecasts have been revised downwards by both the International Monetary Fund and the World Bank from their initial annual forecasts, amidst expectations of a further slowdown in 2024.

An IMF assessment of the local economy has also ruled out chances of Botswana’s GDP strengthening in the medium-term due to a subdued diamond industry which will have economic ripple effects over progressive quarters, coupled with a downturn in other sectors such as agriculture.

“The expected slowdown in 2023 reflects a decline in diamond production and prices this year, with weaker global growth likely to depress other exports,” the report reads. “This will be partly offset by growth in the non-mining sector, with the fiscal expansion supporting public investment.”

Politically, it sounds correct to preach a manifesto that sells the nation's high hopes of being a nation at par with the likes of Germany, the USA, and Japan, but the economic work and demands of such render Botswana’s ambitions a mere dream without requisite economic investments that can double if not triple their contribution to GDP.

In Africa, Seychelles is the only country that has been bestowed the meritorious title of being a high-income economy, a dream that is far-fetched for African top economies like Nigeria and South Africa (SA) despite their industrious nature in agriculture, engineering, and mining. South Africa’s economy is more than tenfold bigger than Botswana's and that country dominates Botswana's trade by close to 67%. And yet SA is still far from being a high-income country.

While delivering the State of the Nation Address (SONA) last week, President Mokgweetsi Masisi said that the dream to transform Botswana into an HIC is still alive and he is eyeing other sectors to help the mining sector shoulder the high expectation of economic growth. Interestingly enough, the paragraph on Botswana’s HIC dream follows after an account of more than five reasons why the dream may not be possible.

In his SONA, the President at first details how the war in Ukraine has destabilised global value chains, dampening economic growth prospects. He then goes on to mention the weak recovery of China on top of a crisis in the global diamond market. He then goes further to admit that the economy is growing at six percent, which is less than the desired level to reach HIC status by 2036.

But lo and behold, he stresses that despite these challenges, becoming an HIC will be possible for Botswana.

“The annual average growth rate falls short of the six percent required to attain a high-income status as espoused by the National Vision 2036,” Masisi said. “It is for this reason that we are intensifying our efforts to transform the economy and sustainable economic development remains central to government’s development agenda.”

In the following paragraph, the President goes on to indirectly pour water on the dream by citing the difficulties added by inflationary pressures and high-interest rates that make economic growth close to impossible. Going by the President’s address, the road ahead is bleak and the HIC is just a dream, a mere dream.

While Botswana can reach HIC status, 2036 is surely a difficult timeframe given the global uncertainties.

According to the Ministry of Finance’s Budget Statutory Paper released in September, Botswana’s economy is susceptible to collapse from external shocks due to its weakened financial buffers that are supposed to shield the economy from unforeseen economic risks.

Experts at the Bank of Botswana have also repeatedly said that with the current level of government spending, revenues, and savings, any new shock would cause an economic crisis.

“We have seen the shocks; September 2001 brought us down, the global financial crisis was a major shock,” former central bank governor, Moses Pelaelo told Mmegi in August. “In 2015, another commodity drop, then COVID found us. “If we are found now with our ratios being where they are, we will not have the buffer for the fiscal space or the monetary policy space and the external buffers, to be able to survive. “We will have serious challenges. “This challenges all of us, not just government, to say what can we do to reverse this trend that has undermined our economic resilience and introduced structural vulnerability.”

The Budget Strategy Paper reveals that Botswana’s foreign reserves currently can withstand less than 10 months of zero diamond sales – the country’s major export – which casts doubt over the sustainability and overall strength of the economy. The country has also long been preaching diversification from diamonds, with the goal of being an export-led economy. However, budget revenues and export earnings are still dominated by the shiny stones, although drivers of the GDP have at least diversified somewhat over the years.

Analysts at Econsult, a local advisory firm, recently relayed through a report that if things go on as they are currently progressing economically, it will not be possible to reach the high-income status by 2036. This is because of the hefty economic demands Botswana has to meet to get there.

“Botswana’s recent economic growth rates have been far below the rate required to achieve the HIC target, and hence a significant increase – approximately a doubling of the growth rate of real GDP per capita – is required. “In other words, 'Business as Usual' will not achieve HIC status by 2036,” the report reads.

The road ahead is crooked for the nation of Botswana, diamond sales are weakening, other sectors are in limbo, and diamond reserves are declining, but the country’s dreams are lofty. The question is: what is the basis for such dreams and has the cost been considered?

The HIC dream is surely the needle in a haystack but to find it international and local economic organisations have suggested a few starting points that would bring a real economic turnaround for the economy. And the suggestions are not new. They have been made repeatedly over the years in various fora.

The rationalisation of state-owned enterprises tops the list. State-owned enterprises or parastatals are notorious for draining government coffers year in and year out, with the majority of them surviving on government grants and subventions.

Despite its small population, Botswana runs a whopping 64 parastatals, the majority of which are not profitable. Even worse, the commercial parastatals are run without a solid business case. They gobble huge wage bills as they employ tons of staff to operate, a situation which exacerbates the costs they incur to operate.

Economists at Econsult, a local advisory firm have described the local parastatal situation as a bad disease that is made worse by the fact that government is not committed to the rationalisation process. Government has allowed parastatals to be rogue money spenders without any action taken against them.

“Notwithstanding the official commitment to SOE reform and privatisation, the practice has been just the opposite, with no full privatisations, the creation of several new SOEs in recent years, and very slow progress with SOE reforms,” researchers revealed. “Poor SOE performance also costs the government financially due to the perpetual subsidies required to support inefficient and loss-making SOEs and makes it more difficult to achieve fiscal sustainability. “Many SOEs are also characterised by a lack of accountability, with weak ministerial oversight, and a lack of transparency such as a failure to publish annual reports and accounts.”

Other experts have stressed the need for Botswana to slash the huge public sector wage bill which by international standards is very high. Government is the largest employer in the economy of Botswana and shoulders a huge wage bill that spans from parastatals to government departments and defence arms, draining national revenue by great margins.

Consultants at Econsult advise that reducing this wage bill could help reduce the weight of costs on Botswana’s economy

“The public sector wage bill is high by international standards and is unsustainable. Moving public services online could be an important mechanism to achieve this,” the consultants said.

The central bank has been recommending similar and additional solutions to place the economy on a sustainable trajectory. In its Annual Report released in August, the BoB again recommended that government rein in spending, particularly on its broad-based subsidies and simultaneously broaden the tax base, amongst other urgent reforms. Ending blanket subsidies in particular, in areas such as water, electricity, health, and education, has come up frequently in the central bank’s recommendations and this year was no different.

“The government has a social register and we have also advocated for a digital or biometric Omang where we can load everyone’s profile and say this person is an orphan, or this person is earning less than P5,000 and when they go to Marina (Hospital), they are the ones that can be allowed to come in without paying,” Pelaelo told Mmegi. “But there are those of you who are seeing private doctors every week, month, and paying P270 consultation fee and you also pay P100,000 for being hospitalised in a week at a private hospital. “In Marina, that number is P60 a day, I think. “We need cost recovery of some kind to deal with this question of fiscal consolidation.”

For the central bank, the critical challenge is that the country’s revenue base remains anchored on mining and customs revenues under the Southern African Customs Union. For 2023–2024, these two sources are expected to contribute about 60% of revenues or P48.2 billion. Both sources are in flux, Pelaelo said.

“There are current negotiations right now about SACU, there is also the African Continental Free Trade Agreement and so there are lots of things that are coming in. “Then there are minerals which are finite resources. “We are now beginning to talk about Jwaneng (Mine) plateauing and we are going to be going underground to search for those diamonds meaning the production costs are going to become higher. “We can no longer continue to be rent-seekers and depend on just digging the ground to get diamonds.”