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Agonies of a debt trapped nation

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In the midst of negligible wage increases, sky-high unemployment, excessive income inequalities and massive household debt that threatens to shoot through the roof, the Botswana Democratic Party (BDP) government is reluctant to raise wages to meet the cost of living. On the other hand, the opposition offers tempting alternatives. Interestingly, esteemed commercial bank, First National Bank Botswana (FNBB), warns that Batswana will continue to endure financial difficulties and plunging the nation further into more debt. KEABETSWE NEWEL reports on the agonies of an impoverished nation

Early this year, President Mokgweetsi Masisi awarded public servants a 10 percent salary hike for scales A-B and 6 percent for scale C. The increment was meant to increase household disposable income and ease household spending. Last week, FNBB Chief Executive Officer (CEO) Steven Bogatsu said household expenditure makes up almost half of the country’s GDP and is expected to increase slightly above GDP growth levels in the forecast horizon.

However, Bogatsu, who is the captain of Botswana’s biggest commercial bank by value, made a startling revelation that while the recent government salary adjustments will support growth, they may not be sufficient to fully compensate for pressures on household disposable income because of unemployment. Bogatsu remarked in FNBB’s financial results statement for the year ending 30 June 2019 that was delivered last week. Unemployment is around 19 percent, with more than half of the unemployed being the youth.

Bogatsu’s warnings have always been consistent in that Batswana’s incomes are so low that they are forced to rely on loans to augment their household spending. It is such loans that have kept Batswana trapped in household debt, and as a consequence, poverty. Sky-high unemployment rates worsen the situation, according to the top banker. He relayed the same message last year when presenting financial results for the year ending June 2018 before a throng of business scribes and analysts.

“We at FNBB are worried by credit extension being driven by households,” he said.

At P16 billion, FNBB has the highest loan book in the country, particularly in the retail segment of the banking sector. Retail banking, also known as consumer banking, is the typical mass banking that envelopes the household. Of FNBB’s total loan book, P10 billion are loans extended to households while businesses are the second largest borrowers at P3.2 billion. When other banks are included, Batswana households owe banks well over P25 billion. Bogatsu has observed that individuals (known in technical terms as household consumers) who borrow “don’t invest” but “augment declining income levels”.

According to the Bank of Botswana (BoB), household credit as a percentage of GDP is at 19 percent. Consumption as a percentage of GDP is at around 52 percent. Further, FNNB estimates that around 10 percent of households are estimated to have discretionary spending power – meaning that 90 percent have only enough disposable income to cover just basic necessities of food, housing and transport.

Just last year, BDP Members of Parliament (MPs) rejected a motion by the MP for Jwaneng/Mabutsane, Shaun Nthaile of the UDC, for government to raise minimum wages, with the then Minister of Employment, Labour Productivity and Skills Development Tshenolo Mabeo saying there was no need for government to review minimum wages to match the rising cost of living. Retail workers are the lowest paid. Government has set their minimum wages to P1057 per month, way below the high costs of living.

While Batswana wallow in poverty, which is not helped by unemployment, high household indebtedness and low wages, President Masisi – in his capacity as President and leader of the BDP – said increasing wages significantly would collapse the economy. Masisi said the BDP wants to keep the economy sustainable and will not overwhelm the economy with what it cannot afford, as evidenced by rising deficits.

Masisi’s utterances strike a chord with those of former deputy governor of the Bank of Botswana (BoB), Dr Keith Jefferis, who said government revenue has been in structural decline for several years relative to GDP, and that weak diamond sales will make it difficult to achieve the 2019/20 revenue targets set out in the February 2019 Budget. Dr. Jefferis is Managing Director at Econsult.

On the other hand, the UDC president Duma Boko dismissed that as lacking substance. In his view, Botswana needs re-prioritisation in order to channel money to more important areas. Boko described himself as one worried by the dwindling economic and financial state of Batswana. According to Boko, the UDC – which is a bloc of a few opposition parties – is motivated by the sorry economic and financial state of Batswana to adjust minimum wages to levels at par with the cost of living. UDC promises to pay a minimum wage of P3 000 to formal employees, should it be voted into power. Boko said such payments will be made possible by efficient management of state resources, which he said include non-tolerance of corruption and state looting to free up some cash for more important state projects. Old age pension will be hiked to P1500 while tertiary students will receive P2500 as living allowances.

The Chairman of the Alliance for Progressives (AP), Pius Mokgware, said his party is not against hiking minimum wages. “We have always been clear that it has to be done on a sector by sector basis and not a blanket approach,” he said, adding further that the AP, should it attain state power, will build the economy so much that market dynamics will influence salary hikes and wage increases.

The opposition seems to be in agreement with trade unions, which also decry the low wages of Batswana. Tobokani Rari, Secretary General of the Botswana Federation of Public Sector Unions and of the Botswana Sectors of Educators Trade Union, believes that Botswana is a wealthy country whose resources have been mismanaged. He believes that while the country has much wealth made by the workers, there is lack of fair distribution, leaving public workers impoverished and trapped in debt because of low pay.

The average earnings for Batswana is P5000 while expatriates average P15 000, three times more, according to Statistics Botswana. Dr Burton Mguni, the Statistician General, reveals that 24 percent of household expenditure goes to housing and food which gobble up 17.8 percent and 12.8 percent respectively. Government hikes transport costs at least twice annually, while food prices are uncontrollable. At Kgori Capital, Portfolio Manager Tshegofatso Tlhong has observed that salary increments have not kept up with inflation.

She said in an environment of rising expenditure for necessities (rental, water and electricity tariffs, food), coupled with minimal increases in disposable income – the purchasing power of households gets eroded, arguing that households could then resort to credit to augment income and borrow for consumption purposes

The result? “This typically results in higher debt-to-income ratios, thus pointing to further pressures on income levels,” said Tlhong. The debt-to-income ratio is one way lenders, including mortgage lenders, measure an individual’s ability to manage monthly payment and to repay debts.

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