Rentals, the informal sector and govt intervention
Mphoeng Mphoeng | Monday April 27, 2020 11:57
Social distancing and lockdown rules, whilst necessary for the control of the virus, are detrimental to many economies and more so an economy like that of Botswana, which is reliant on sectors such as hospitality, travel, tourism, mining and the informal sector.
The Botswana government has in previous weeks announced many interventions to assist businesses that will be adversely affected by this pandemic. These interventions include a wage subsidy ranging from P1,000 to P2,500 for employees of companies and industries affected by the pandemic, tax deferrals, loan guarantees and holidays from commercial banks, a food basket programme and a potential economic stimulus package to encourage Batswana to get into businesses such as manufacturing going forward.
Whilst these interventions are far reaching and will strain an already disrupted national budget, Batswana in different spheres have called on government to do more to cover the ‘blind spots’ in the interventions. I will therefore look at some of the assistance Batswana have appealed for and what considerations the government should have whilst assessing these potential interventions and the challenges posed by them.
Rental ‘Holiday’/ Subsidy
Over the past few weeks Batswana have appealed to the government to assist them or encourage respective landlords to offer rental holidays in the same manner banks have offered loan repayment holidays. This request is based on the fact that rental commitments form a large part of monthly expenditure. The types of people affected by these are individuals in the residential markets and businesses in office and commercial markets.
Whilst these holidays would be beneficial to the tenant, it is important that they also be assessed from the landlord’s perspective. Most landlords will probably have financed their properties using debt from financial institutions therefore their ability to give a holiday is limited. From both a residential and business perspective, those financed by debt should be able to qualify for the already existing loan holiday schemes from commercial banks and financial institutions like CEDA, BBS and NDB. This would allow them to then forward the rental holiday to tenants in their houses and office spaces. Any adverse effects to the loans like capitalisation of interest affecting the repayment must then possibly be passed to tenant using a higher rental post the pandemic.
This though should not be a blanket dispensation. Just like the wage subsidy, it must be clear that this is only extended to businesses and individuals whose tenants are affected by the pandemic. For example, proof must be provided to the banks that the tenant in a house or office works in hospitality, tourism, informal sector etc or any other business, which forces the tenant to not be able to pay his/her rental. Though this arrangement will be on the back of an already existing scheme, it is probably important for government and the banks to differentiate it as a separate scheme for ease of discussions with landlords and tenants. Very strict and explicit rules should be put in place to avoid landlords thinking that the holidays or subsidies are optional. Tenants should have some ability to report landlords who are not assisting them or trying to push them out during these times.
In some cases, landlords may not have a mortgage but could be using the rental as a way of sustaining themselves. Similar to the wage subsidy, all these landlords could register with government, provide proof of rentals, provide proof of BURS registration and compliance, provide proof of strained tenant and then a consideration of how much of the due rental the government will advance to the landlord. This should be structured as an interest-free loan to the landlord with an agreement that once tenant is able to repay, the rental would be adjusted upwards to claw back whatever holiday was received. (illustration: if your rental is P3,000 and you get a holiday for three months this puts you in arrears by P9,000. The landlord could then agree that you pay an extra P375 for 24 months, which he/she would forward back to the government). This obviously introduces credit risk issues such as if the tenant decides to move, loses their job etc. An alternative to solve this issue could be to have the tenant apply to government themselves and therefore regardless of whether they move or lose their job etc they would still be expected to pay the loan as and when they are working.
It is my assessment therefore that whilst instituting a specific rental intervention would be complex with many stakeholders, many of the necessary pieces already exist. What this would do though is possibly balloon the bill to be carried by government, which as Batswana must take responsibility probably with increased taxes post the pandemic to ensure recovery of the government’s fiscal position.
A large part of Botswana’s active workforce is actually in the informal sector. This would include businesses such as combis and taxis, small scale farms, dimausu, rent-a-chairs, hawkers, airtime vendors, ‘bush’ mechanics, artists, photographers and a lot of SMEs. So far the interventions by the government have focused on companies registered with BURS and this excludes most of the informal sector though this sector is hardest hit as it relies on foot traffic and a functioning economy.
The assistance to this sector must be wide and far reaching. It must include loan repayments with banks, tax deferrals where applicable, rental holidays and wage subsidies to employees. The biggest challenge to assisting this sector is registration and knowing who is where and how they can be assisted. Minister of Trade and Investment Peggy Serame on April 21, 2020 in a press conference on Btv announced that her ministry has tasked LEA with the registration of these businesses though she was non-committal on a time frame. (I do believe we missed an opportunity for this to be done by bo Mma Boipelego as they register Batswana for food baskets).
It is at a time like this when we should be using technology to leverage these registrations. Using SMS to alert the nation and people in those industries to register via SMS to a specific number would be a much faster more cost efficient model. Whilst this may be open to some fraud, the cost of that would be offset by the savings you make with doing a nationwide manual registration process. The advantage of using technology would also be to avoid movement of individuals who could contract COVID-19 and potentially spread it as they register people and companies. Technology should also be used to pay the beneficiaries using mobile wallets like e-wallets, My Zaka, Orange Money etc since phone numbers would be used in registration. This exercise would easily take less than one week with the database being automated as people send in texts of their details.
Both the above discussed interventions would possibly add P1 billion to P3 billion a month to the already ballooning cost of this pandemic. As said in previous articles, this cost is necessary to avoid a complete disintegration of our economy. These costs should be funded by issuing bonds in the short term and tax increases once the economy has recovered. A little ingenuity, use of technology and involvement of stakeholders would take care of these highly complex issues.
*Mphoeng is currently employed at University of Botswana as a lecturer in the Department of Accounting and Finance at the Business Faculty. He holds an MSc in Finance from Manchester Business. He also works with the pioneering local data science company called Spectrum Analytics, where he is involved in steering Botswana into the 4th Industrial Revolution. His career started in 2006 at the Bank of Botswana where he held numerous roles in the Financial Markets Department between 2006 and 2009.