A look at budget expectations...

RAMPHOLO MOLEFHE | Friday February 5, 2010 00:00

 

In the process of doing so, the Minister of Finance will be expected to retreat from the traditional approach that perceives good economic performance in terms of further enrichment of the government even if that does not lead to financial health of the average household.

Only two days ago, Radio Botswana reported that Assistant minister of Finance, Charles Tibone, reaffirmed the efficacy of the devaluation of the Pula on mainly one ground, that

* Further strengthening of the Pula against the currencies to which it is pegged will lead to collapse of the local businesses that will not gain much mileage out of their exports because there will not be much difference between the value of the Pula compared to the foreign currencies in which their exports will be bought.

That view is not consistent with the views of middle sized and small business or those of the informal sector.Firstly, very little manufacturing is done totally with local raw materials.  Many of the raw materials required for manufacturing in Botswana have to be imported.  That means that the importers need more Pula to buy in South Africa, America, Britain, Japan or the European Community in general.

That cost will then be reflected in the price of the finished commodity invariably placing it beyond the reach of the Botswana market, or if you wish, the average Motswana.  The result is that for the most part, profitable manufacturing will rely on the narrow market of a handful of rich Batswana and its extension outside Botswana with all the implied challenges of transportation and global competition.

Secondly, Botswana relies on South Africa for almost all its food, the cement that fuels the construction industry and several other basic necessities.  That places the Botswana consumer at the mercy of the retailers who are also compelled to import at higher prices from that country and a few others.

Devaluation, coupled with the recession, then, has had a far more acute effect on low and middle income folk, and the poorest of the poor, most of them unemployed or forced into the ranks of casual labour in the un-unionised sections of the economy.

In the main Botswana is a government centred economy, driven largely by De Beers and the government, and supported by Bank of Botswana revenues, and at a distant third, tourism.

The reference to exports refers therefore, mainly to the export of diamonds by the government and De Beers which will  fetch US dollars that translate into six to seven times the price in Pula terms.  So the government and De Beers, through the Central Selling Organisation in London, are that much richer.

Ten to 20 farmers also gain from favourable import prices negotiated with the European Union for beef, and so they get nearly nine times the number of Pula for the price in Euro.

The government gains from devaluation of the Pula what the average household loses.  The government is also able to cushion itself against the worst effects of the recession by resting on its foreign reserves invested in a variety of the world's hardest currencies.

The argument then, is that the effort to retrieve the average household from the ravaging effects of the world recession will require an alternative view of economy that negates the notion that a rich government means the same thing as a prosperous nation.  In fact, Botswana provides the perfect example that in the underdeveloped world, the very opposite is usually true.

CEO of the Botswana Confederation of Commerce, Industry and Management, Chombie - Ellis, appears to rely on conventional wisdom, whose efficacy has seldom been realised, that the captains of the private sector should be looking to the government and the 2010 budget to further reform tax structures in order to provide incentives for foreign companies to invest thereby providing jobs.

Speaking on Radio Botswana Wednesday morning, she pointed out that BOCCIM expects the budget to say something about fixing the roads and setting priorities for the most economically sustainable government projects to be implemented.The budget should also say something about the energy project at Morupule and others.  It should also restrict recurrent expenditure.

In her closing remarks, she asked for the budget to demonstrate that the government will keep Botswana safe when the World Cup is played in South Africa in June.

Her wish list could have been more specific:       

 *There should be no further capital development at the BDF for the next five years until acceptable the domestic economy has recovered to levels that assure. An integration plan for the BDF into the Botswana Police Services should be launched with the view of seeking implementation in the next two years.  This will optimise benefits of the peace dividend in southern Africa since South Africa achieved majority rule. Zimbabwe continues to negotiate a working government.

*Recurrent expenditure at the BDP should not be permitted to rise beyond 2009 levels.  The army is already benefitting from a waver on compulsory retirement so that eligible officers can benefit from healthy pensions.

*External travel must be kept to the barest minimum and per diems reviewed to levels comparable with the living standards of the average Motswana.

*All physical developments and State House, ministerial residences and parliamentary flats should be restricted to necessary maintenance only.  Allowances of the Cabinet, parliamentarians and councillors should be tailored to compare fairly with household income of the average Botswana family. (The reference is not to average income which is distorted by the incomes of the few who are extraordinarily rich).

*All extra budgetary spending on presidential football leagues and other cultural activities should cease, or be assigned to the Ministry of Culture whose expenditure is subject to examination by the Auditor General.

*Specially elected parliamentarians and nominated councillors should be paid allowances but no salaries.

*All the information services should be transformed into public media under the supervision of a board and a parliamentary oversight committee, both of which shall consider privatisation of abolition of the different parts of the state media.

*The youth farming grants and others must be reviewed against the general government sentiment that agriculture is not viable in Botswana. Consideration must be given to a Household Gardeners' Fund to encourage planting of vegetables at home.

*There must be no disinvestment in education.  In fact there must be investment where it is cheapest to do so, such as in the arts and the informal sector, where the dividends come at a far higher profit than in the formal economy.  So the pubs, social clubs, museums, community centres, nightclubs must be opened and some though should be given to subsidies.  At least one of the promised arts teknikons or polytechnics should be opened within the year.Keith Jeffries makes the observation in the Botswana Guardian of January 29 that that growth in emerging markets is pushing up demand for industrial minerals such as copper whose prices were up by 150 percent from previous lows and nickel up by 100 percent.

'Other parts of the mining industry will also benefit especially prospecting and mine development activities that have been put on hold'. 

He believes that Botswana will benefit from the trade volumes and higher prices. He also appears optimistic about low inflation rates hovering around five percent.  The low inflation rate is not adequately explained.

 Is it not likely that inflation has remained low precisely because of the depression in household incomes which could not have withstood the slightest rise in prices?  It does seem that the food retailers where the low inflation rate is highlighted sensed that price raises of even a thebe would have made the difference between making the purchase and opting out of the transaction.   So the retailers had the good sense to put the brakes on price hikes in food or any other commodity.

Perhaps then, the observation is that deflation of household incomes, unemployment and impoverishment of the middle and lower income groups makes a good recipe for keeping inflation under control?

Jeffries does raise the matter of the volatility of oil prices which could, if they affect fuel prices, drive inflation up in South Africa and Botswana.

That could only spell doom for the economically disenfranchised who tend to benefit very little from the wealth of the central government.