As Botswana prepares to exit the State of Emergency at the end of September 2021, Mmegi reproduces an opinion piece written by BONE PRINCE LEKGOTLE* in April 2020 regarding the possible impact of the SOE on the economy
An entrepreneur invests money with the expectation that there will be a return on investment. Once that is gone, he no longer has a reason to start or continue with his business. An employee takes out a mortgage or car loan with the expectation of one day owning a house or car respectively. Take that away and the employee no longer has a reason to work or find another job or seek that promotion to earn more money to spend in the economy. An investor just like an entrepreneur wants a good pay-out at the end of the year. Take that away and the investor no longer has a reason to keep his money in the country.
President Mokgweetsi Masisi is reportedly seeking to extend the State of Emergency (SOE) by six months which will see him have unfettered, carte blanche access to make any decision without any oversight authority to answer to. He intends to get the endorsement of parliament on Wednesday 7th April 2020 when parliament convenes in the wake of the growing biological pathogen scourge known as COVID-19.
He also seeks to ask Parliament to ratify the decision to extend the lockdown or extreme social distancing
from 21 days to the 28 that came into effect on 2nd April 2020, an initiative that has seen more informal businesses and others alike come to an abrupt halt. And it is reported that if the situation does not improve by end of April, the 28 days of lockdown or extreme social distancing will start once more in May and as many times as the President deems fit as he will now wield the power to do so with nothing or nobody to stand on his way.
But what does this mean for an economy like Botswana that relies entirely on government expenditure either through employment or procurement of goods and services from a less than significant private sector? And in terms of income, Botswana relies on the mining sector, and the tourism industry that has stopped since the advent of COViD19 and lastly taxes collected by BURS.
The truth is while many businesses are prepared to take the loss of paying employees full salaries for the month of April not many will continue to do so if this continues beyond that. This is due in large part because it will no longer make business sense. The reward for labour is wages/salaries. Therefore businesses cannot pay employees for nothing. It’s either they’ll have to resort to half salaries or retrenchment.
Either way, this will have an irreparable impact on the economy. The circulation of money in the economy will slow down. The value of the currency will go down due to the slowdown in circulation. The last line of business operations will experience reduction in revenue and eventually costs as a proportion of income will wipe off the bottom line. The last line of businesses will now have no choice but to retrench their last employees as business will no longer achieve its mandate of being profitable.
And since BURS charges tax on profits, there will be none to collect from and government’s revenue will be gone.
The entrepreneur along with the investor will pull out his investment and if he is an expatriate, repatriate his funds to a different country or his country of origin. And since our economy is dominated by Asians, once it starts with one, the rest will follow. Banks will now experience withdrawals recalling the Great Depression and banks will now operate under duress and be forced to call in their loans early in order to maintain liquidity stock putting pressure on existing government or private sector employees that may at the time be earning half salaries or worse that may already lost their jobs.
Insurance companies will have to scramble to pay off defaulting clients and this will deplete whatever funds they had gathered over the years in a matter of weeks causing them to retrench employees and close business.
This will be a seismic bomb on the economy and Botswana will have no choice but to come up with a stimulus package to resuscitate the economy...worst case scenario is that this will coincide with an economy that is currently spending its war chest to fight COViD19 and won’t have the resources to bring to life the economy.
Safe to say, the Government of Botswana will not able to wage a war on multiple fronts: the economic disaster and public health crisis. Hospitals will be overwhelmed, medical aid companies will experience withdrawals that may cause them to close shop and most of the clients will have lost their jobs and not be able to contribute to the funds.
Rest assured the fate of Botswana’s economy rests in the choices that will be made in the coming days.
Will the MP’s cede power to the President to extend the State of Emergency? Will they give him the power to institute a lockdown as he seems fit? Are they aware of the cost that will come with it?
Only time will tell, for our sakes we can only hope they make the right decision.
*Lekgotle is a lead consultant at Infinite Capabilities whose expertise includes business development, accounting and taxation. He originally wrote this article for Mmegi in April 2020. We reproduce in light of the forthcoming end of the State of Emergency