Almost P10bn needed in ESP
Around 75 percent of government money is made from selling luxurious goods and services in the form of diamonds and tourism. Leading consumers of Botswana diamonds and tourists are in developed countries, whose economies are projected to decline by 3 percent in 2020. Economists say that diamonds and tourism will only recover after the global economy has stabilised, which will take some time even post COVID-19. As a result, around P10 billion in an Economic Stimulus Programme (ESP) will be needed, but this time around to build home grown industries that will create mass employment, rather than enriching only tenderpreneurs, Staff Writer KEABETSWE NEWEL reports.
At the University of Botswana (UB), Senior Finance Lecturer in the Faculty of Business, Ishamael Radikoko says a good percentage of the Gross Domestic Product (GDP) that is enough not to disrupt excessively the country’s budget but at the same time good enough to contain the pandemic will be needed as an Economic Stimulus Programme (ESP).
“I am thinking something in the range of 10-15 percent of GDP which will be about P4.96 –P7.43 billion based on the GDP at current prices reported in the third quarter of 2019,” he says. At Kgori Capital, Portfolio Manager Kwabena Antwi said while it is difficult to quantify because the level of support required depends on how long the lockdown and other COVID-19 restrictions remain in place, driven by the spread of the virus, internationally the stimulus package size varies from 2 percent of GDP to as high as 10 percent of GDP.
Radikoko believes the funds should be used to jump-start all sectors of the economy that have been affected or will be affected from both the supply and demand side.
He says this is because different sectors are hit at different speed, some of which is instant while others will experience a lagging impact depending on how prolonged the pandemic will be.
“If rationing has to be done due to limited funding the most vulnerable will be the Tourism and Hospitality, Manufacturing in general, travel and logistics companies including the airlines (in our case Air Botswana), Individuals and Families, and small and medium enterprises including those in the informal sector because collectively they contribute a large chunk of the country’s GDP,” he reveals. Antwi concurs with Radikoko. However he adds that the tourism sector will require some support as borders were closed and local travel restricted.
“The entertainment industry will also require support as virtually festivals and concerts scheduled to take place in 2020 have been cancelled,” he reveals.
Their suggestions strike a familiar chord with that of an independent economist, Louis Benedice Sibanda. The need for an ESP is warranted by the fact that unlike other economies, Botswana is driven by luxury goods and services, which people tend to avoid during an economic crisis. To Sibanda, economies like the US, Europe and Asia are the biggest consumers of Botswana diamonds and also spend a lot of money as tourists in Botswana. Stock markets in those economies have collapsed, meaning that investors there (who ordinarily buy diamonds and visit as tourists) have lost money and as such, have decided to cut on spending. “It can only mean, cutting back on luxury such as jewellery and travelling. This translates to a serious loss of mineral and tourism income, leading to a 13.1% GDP decline,” Sibanda states, adding that even post COVID-19, there will be stigma attached to travelling, which means that many tourists will be afraid of travelling in the short to medium term post COVID-19, which will deny Botswana tourism revenue.
“It will hit hard on hotels, restaurants and affect employment,” he explains. In his views, Sibanda said the ESP should as a result be used to create indigenous industries that will employ mostly the unskilled and semi-skilled Batswana en-masse to also reduce government burden of feeding the households. Sibanda mentioned agriculture and agro processing as the low hanging fruits. To him, it is also time to invest in key sectors of the economy that are more stable than commodities.
Botswana imports almost all its food from South Africa. Minister of Finance and Economic Development Dr. Thapelo Matsheka says COVID-19 has shown Botswana that there is need to create local manufacturing industries and produce especially food, and avoid relying on other economies.
According to Sibanda, Botswana introduced an ESP a few years back, but the most of the money was given to contractors to build roads. “What we learnt was that after the completion of those roads, there is nothing sustainable that we remain with as a country, despite that the contractor cashed in and then folded their arms. We need to invest in sustainable projects that will pay back the economy in the short term, and then in the long term of about 5 to 10 years,” he adds.
Instead of using huge budgets to procure goods from foreign economies, Sibanda says it is time to finance Batswana to procure machines and produce the very products that we import and produce locally. Further, Radikoko said the idea with stimulus is to keep the companies operating and also not affect employment such that even after the pandemic the business activity continues.
“Therefore in my view all companies should be assisted whether a company is a foreign direct investment or a local company.
Of course priority should be given to local companies as the economic stimulus is unfolded but ultimately the companies with foreign shareholders should be assisted especially those that are employing a lot of Batswana and contribute significantly to the business activity and hence our GDP,’ he states.
For his part, Sibanda says Botswana must be careful with its bailout to ensure that government spends money where it creates the most value.
“We should use state funds on companies willing to beneficiate products in Botswana. If we don’t, we will export all our money to other economies and help them quickly bounce back, while we struggle,” he pronounces.
He adds that government should seek to reduce the trickledown effect of the Pula in South Africa.
“ If you walked into Choppies today, or Pick And Pay and spent P1000, the next morning they will use a large portion of your money to re-order stock from South Africa. In South Africa your money will pay truckers, shops, filling stations, employees, who in turn will pay rent, maids, and also buy from Spaza shops and taverns. It’s a whole value chain of what our money does in South Africa and other foreign economies,” he notes.
To him, most of the products we import can be restricted into larger quantities that would then be re-packaged here in Botswana, to ensure that we create economic value here. To him, by funding such, then the economy will be easily stimulated.
SUPPORTING HOUSEHOLDS AND THE INFORMAL SECTOR
At Kgori Capital, Antwi states that there is need for transformation of regulatory framework, by creating laws and policies that deliberately ease doing business and supporting small businesses and the informal sector, like access to finance and doing away with hurdles such as need for collateral when accessing funding from state owned development finance institutions. Minister Dr. Matsheka said government will not create any fund specifically for the informal sector. He said it is because the informal sector is no different from households. Radikoko however says with the households, the unemployed and the underemployed, a pay cheque should be made that can cover basic needs for at least three months.
“In my view the process of assessing people for need during this period is not necessary because even people who normally have purchasing power are struggling this time around. Looking at the speed at which everything is moving a pay check will help to curtail the situation, and people will not have to wait for the logistics and processes of assessment and then food deliveries when hunger has long approached,” he advises.
Sibanda says in the event an ESP is planned, government must be careful of the extent to which the economy is stretched. “We must do what we can afford. If government can focus on creating home grown industries, people will be employed and the informal sector will benefit from increased economic activity,” Sibanda states.