2021: The economic year that was

Painful memories: It is hoped that the economy will continue to recover from its record contraction in 2020  PIC: KENNEDY RAMOKONE
Painful memories: It is hoped that the economy will continue to recover from its record contraction in 2020 PIC: KENNEDY RAMOKONE

This time last year (December 2020) Botswana was staring into the economic abyss. Globally 2020 saw the worst economic contraction in more than half a century. Botswana was not spared; seeing the worst downturn in its history. Tourism ground to a halt due to travel restrictions. Hospitality and retail were non-existent as lockdowns persisted.

Diamond sales took a nosedive as sightholders were unable to fly into Botswana to make purchases. Unbudgeted for expenditure on fighting COVID-19 spiralled the budget deficit out of control, leaving the government scrambling to find a way to finance expenditure as revenues from taxes and diamonds plummeted. Unemployment crept up even higher as the State of Emergency (SOE) tried to reduce formal sector retrenchments. But at this same time, the internationally good news about vaccine development was being announced and so we walked into 2021, cautious but hopeful.

The year started with the Budget Speech 2021-2022 bemoaning the message that business as usual as a country was no longer viable. Whilst the budget expected growth to return (forecasted at 8.7 percent growth for 2021) and the budget deficit to be reduced, it still proved to be a sombre budget. The balance between recurrent and development spending continued to skew towards the former (a bad thing), public sector salaries continued to grow towards unsustainability (15% of GDP) and the budget deficit continued to prove to be a challenge to finance. Government planned to borrow on the local bond market which ended up proving to not be as easy as hoped due to asymmetric expectations between investors and the Ministry of Finance (and Economic Development).

As the year progressed, the President of Botswana Mokgweetsi Masisi, in wanting to combat the issues of complacency in government implementation of political ideals and policies, announced a 'RESET Agenda'. The main principles of this new agenda are to combat COVID and its effects, to align government execution with the presidential agenda, to speed up the digitisation strategy in Botswana, focus on value chain development in our economy and bring in an overall mindset change to Batswana. Of particular interest to the economy is the value chain development principle which has plagued us as a country. Moving Botswana from being a country that exports raw materials and imports 95% of finished products is a challenge that would combat unemployment and grow wealth amongst Batswana. We have seen this principle being injected into Botswana’s approach to Special Economic Zones and the Economic Recovery and Transformation Plan (ERTP). Both policies have infused a focus on cluster models, which would effectively 'group' industries in a value chain around a specific area with locational advantages in a particular sector. In 2022, we should see considerable movement on these around centres such as Lobatse (meat and leather), Pandamatenga (commercial horticulture), SPEDU area (horticulture and agri-processing), Francistown (logistics) and Kasane and Maun areas (tourism). This approach is also espoused in the Debswana Citizen Economic Empowerment Programme (CEEP), which we saw building up a head of steam this year and will prove to be a great model and benchmark for rolling out empowerment programmes across the economy.

In an effort to quell the growing tide of dissent among Batswana on inequality and feeling excluded from the local economy, the Minister of Trade and Investment presented (and got passed) the Economic Inclusion Law (which replaced the Citizen Economic Empowerment bill to much dismay and criticism across all quarters). The law replaced the Citizen Economic Empowerment Policy 2011 in a bid to make its provisions binding on accounting officers and hence improve the implementation of its programmes. This was a first reflection of the 'RESET Agenda' initiatives and this law focussed on using government procurement to grow and protect local businesses.

The Ministry of Trade and Industry also approved the Middle Class Strategy 2021 whose main objective is to grow, empower and strengthen the middle class in Botswana. The rationale for this strategy is that the middle class could be leveraged on to create more companies, wealth and jobs and as the middle class is strengthened, you would have spillover effects into other classes. This policy would also feed into the National Entrepreneurship Policy 2019 and it outlines the approach to be taken in growing the middle class. The main strategic focus areas include tapping into the middle class’ competitive advantage in venturing into entrepreneurship, improving the middle class’ business opportunities and ability to contribute even whilst in formal employment, creating an enabling environment for the development of the middle class and effectively communicating the ideals and opportunities of this strategy to the relevant stakeholders. Tying this strategy to the Economic Inclusion Bill and the focus on value chain development displays an alignment of efforts that should bear fruit in 2022 and the future.

The most notable economic development in Botswana in 2021 though has to go to the ending of the State of Emergency in September 2021, which was imposed by Parliament in March 2020. The removal of the SOE ended 18 months of distress for businesses that endured repeated lockdowns and curfews that put a strain on business while the costs of doing business skyrocketed. The most impacted businesses by the SOE were in the retail, hospitality and creative arts sectors as gatherings were prohibited and alcohol bans were imposed. The lifting of the SOE meant that companies now have the freedom to restructure and rationalise structures which could lead to further unemployment but possibly keep the businesses viable. Since the SOE was lifted, we saw a considerable uptick in events and hospitality sectors though these are now threatened by the ultra contagious Omicron variant we are witnessing spread across the world.

In conclusion, 2021 started off gloomy and confused. Whilst we have seen a return to growth and some green shoots in economic activity, COVID-19 continues to loom heavy, creating uncertainty and hope with a bucketful of caution. With the current revisions of the Industrial Development Policy (IDP) and Economic Diversification Drive (EDD), coupled with the recently passed and approved Economic Inclusion Law and the MITI Middle Class Strategy, a clear thrust towards growing activity by citizens focussing on cluster models and value chain development is evident.

As in past years, the question will always be on eventual execution and implementation but hopefully, the RESET Agenda will address this. 2020 was extraordinarily hard, 2021 attempted to remove the gloom and doom, 2022 will hopefully prove to be a new dawn. Not just in relation to COVID-19 but the Botswana economy in general.

*Mphoeng is a director at MP Consultants, a local citizen-owned corporate finance, economics and business consultancy. Previously, he worked for the University of Botswana as a Lecturer in Accounting and Finance, Botswana Investment Fund Management (BIFM), Standard Chartered Bank and Bank of Botswana.

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