Not so long ago, Minister of Finance and Development Planning (MFDP) Kenneth Matambo stood at the national assembly and told Batswana that the closure of BCL group will have a minimal impact in the economy. His boss, President Ian Khama, also seems to have that thought; The Business Weekly & Review once again reminds the President and his minister that the state is already at a critical point and that it is time to stop the ‘day dreaming’.
”We anticipate an overall domestic growth rate of 3.5 percent for this year and 4.1 percent in 2017,” President Khama said during the State Of the Nation Address (SONA). In this respect, the first citizen said that while the liquidation of the BCL Group of companies will continue to have economic and social implications, particularly in the area of employment, it is anticipated that it will have limited direct impact in terms of exports, Government revenues and overall growth.
Perhaps the President also forgot that Copper/Nickel is the second single largest export revenue earner, after the mighty diamonds.Diamonds account for 80 percent of the export revenue, and Copper/Nickel is the runner-up with 3.5 percent.
The closure of BCL group, meant that all the nickel/copper formerly exported by the collapsed mining outfit will be no more. To make matters worse, BCL shutdown follows another shutdown of two large coper mining outfits, African Copper and Discovery Metals Limited. The ‘Commander in Chief’ when saying that, “it will have limited direct impact in terms of exports, Government revenues and overall growth,” should have further told Batswana that the landlocked stake will no longer make any money from copper/nickel. In all the money Botswana makes from exports, 3.5 percent of that came from copper/nickel or specifically, from BCL group, African Copper and DML, with all these closed, Botswana will lose over P4 billion in export revenue which Copper/Nickel added to Matambo’s purse annually, on average.
This to the president is ‘just nothing’, and has no impact on the state on the economy, in his view.
Explaining further, Khama, who will cease being President in 2018 said government shall, nonetheless, continue to closely monitor developments with respect to the BCL liquidation process with the view of updating Botswana’s macro-economic projections as may be necessary. Interestingly he said that the negative effects of the liquidation of the BCL Group may reduce the anticipated growth rate, but its medium to long term effects exports and government revenues should be manageable.
This is exactly what Minister Matambo said a not so long ago.
In a chat with this publication after Matambo’s NDP 11 presentation, economic pundits felt that BCL closure will have severe impact in the economy, statements which consequently underclass those of President Khama as well.
During that previous interview Head Researcher Garry Juma said, “the negative multiplier effects will be severe and will have long lasting effects on the whole economy at large. He said the closure of the mine will send ripple effects not only in the mining town of SelibiPhikwe, Francistown and surrounding areas but the whole economy of Botswana, a total contrast to President Khama and Minister Matambo.
Juma said, Francistown will be affected even more as Tati Nickel Mine, a subsidiary of BCL has also been closed. He said Palapye and surrounding areas will also feel the pinch as the Morupule coal mine will be affected given than BCL was the major consumer of Morupule coal. The market watcher said the placing of BCL under provisional liquidation comes at a time when the economy is still recovering from the closure of Boseto and African Copper mines throwing many workers into the streets.
“It is the second largest private sector employer in the country with a labor force of +/-4200,” Juma said.“It consumes just fewer than 20 percent of total electricity usage in Botswana or 43 percent of BPC’s own power generation,” Juma said. This clearly means that BPC, a utility provider, owned by the state is going to be losing a quarter of its revenue. To Mathambo and Khama this is just a minimal effect, but to other economists, it is a severe ripple effect. Emmanuel Letsomane, Financial Analyst at an Asset Management Company, Ipro Botswana believes that the quasi-government organization will be plunged further into debt, which will affect its operations and ability to provide services, and will request more money from government which will continue hurting the taxpayer’s purse. BPC’s losses for the previous year were at P1.2 billion, with the loss of the BCL contract Letsomane argues that losses will be higher.
THE STATE OF THE NATIONAL COFFERS
Botswana experienced a decline in diamond revenues after the diamond market was subdued, as a result of economic shocks, hence limited demand from largest diamond consumers in Asia and USA.
Last year the state tapped into foreign reserves, and the nation was told that an Economic Stimulus Programme (ESP) was being initiated to jump-start the ailing economy. Evidence shows that government may have drawn down a total of P3 billion from the foreign exchange reserves in a period between December 2015 and March 2016, which led to a decline in the total reserves. A 2016 quarterly economic review by independent economic consulting firm, Econsult Botswana, reveals that Foreign Exchange Reserves decreased by 3.5 percent from P84.9 billion in December 2015 to P81.9 billion in March 2016, which could only suggest a draw down by the penniless state. The projected deficit however, will also be financed either from the foreign reserves or by debt.
De Beers and Botswana’s Okavango Diamond Company (ODC) sales fell by over 20 percent in the first half of 2015, after ODC went for some time without holding sight sales, while De Beers sales declined as well. While Botswana’s economy is dependent on diamonds, most of its revenue is also accrued from the Southren African Customs Union (SACU) Common Revenue Pool (CRP) as well as from the Botswana Unified Revenue Service (BURS). Revenue garnered from the SACU CRP also has its challenges, and which definitely eat into the state revenues.
The CRP registered a surplus with respect to the 2012/13 and 2013/14 financial years respectively, following its annual audit. The surplus in these years supplemented the 2014/15 deficit, which is why member states shares were on an upward trend. However, the Secretariat warned that global economic growth will be subdued and that SACU trading partners will also experience a slowdown in total trade. She said the trade will also affect the revenue pool in the negative, which means that Botswana will probably get ab smaller share out the SACU CRP, consequently diminishing state revenues.
Government’s revenue from the state-collecting agency has been almost stable for some time, but with the continued shutting down of companies and massive retrenchments, BURS revenue may go down.
BURS’s 2015 annual report shows that as a percentage of GDP, tax revenue collections showed an upward and consistent growth from 20.9 percent in 2010/11 to 25.1 percent in 2014/15. Over the period since the inception of BURS, tax revenues as a percentage of GDP have consistently hovered around 25 percent, generally indicating that collections roughly follow GDP growth.
The growth in revenue collection occurred across all tax types during the year under review. Income tax grew by 15.1 percent from P13.802 billion to P15.883 billion and VAT by 17.2 percent from P5.041 billion to P5.907 billion. SACU receipts grew at a comparatively higher rate: by 19.1 percent from P13.170 billion to P15.690 billion. Tax collection by the BURS depends on three things, employees, businesses and money circulation. However, this year alone, there have been too many retrenchments, which will possibly result in loss of income tax. However the populace that lost their jobs will not only cost the tax man in income tax. These are the massive lot who spent their salaries in shops and in the general economy, the money that generated VAT on the other end.
THE STATE OF UNEMPLOYMENT
Of late, unemployment has been the talk of town, rightfully so because every sector of the economy has been bleeding jobs. In fact, government has been on the fore front of the retrenchments. President Khama should have been forthcoming in telling Batswana the real numbers job losses and of course how many jobs have been created as well. It would have been befitting for the head of state to speak of job losses at companies like African Copper (which employed more than 300), Discovery Metals Limited (DML) (which employed more than 400), Moolman Mining (over 300) which have closed shop, leaving almost a thousand people unemployed.
The people who used to pay tax and were added to the employment figures. In the biggest happening ever, BCL Mine and Tati Nickel Mine were also liquidated, retrenching just over 6000 people directly as a collective, an additional estimation of around 5000 is said to have been indirect job losses which came as ripple effects of closing the two Nickel/Copper producers, an significant happening in the economy which the President should have mentioned during his SONA.
The SONA should have also told Batswana that faced with turbulent times, diamond cutting and polishing companies also shed around 2500 employees.
During its glory days, the diamond cutting and polishing industry employed about 4 000 workers, but it has been trimmed down to less than 2000. Companies like Moti Ganz retrenched at least 100. Leo Schachter also cut out 100 employees, just like Eurostar. Shrenuj recently shut down, throwing 300 in the lurch, but that was after 100 employees were let go at first.
Safdico also retrenched hundreds, just like Zebra, Dalumni, Tiffany and Teemane which laid off 400 when it shut down.DMB closed shop. Diacore diamond polishing company, which has been operating in Botswana for seven years, employed about 130 people before trimming down the workforce to 80 employees. Perhaps all these numbers who lost their jobs, are not part of the President’s economy, since he did not recognize them in his state of the economy address.
Through the SONA, Khama should have clarified to Batswana about the ongoing mass-retrenchments at the government enclave. He should have spoken about the tax-man, Botswana Unified Revenue Services (BURS) restructuring, which will reportedly leave 400 employees in the lurch, just before soon. Further, Khama should also have spoken about Water Utilities Corporation (WUC) and its Itemogo restructuring project.
WUC, which has more than 3000 employees will fire hundreds soon. A letter dated 21 November signed by the corporations Chief Executive Officer, Mmetla Masire cites that the progress on the design of the WUC structure, both the macro and micro will be communicated to staff in January 2017.
The letter also states that group counseling is scheduled to commence on the 12th of December 2016. When asked whether the corporation will retrench employs once restructuring process is over, Masire said he has “no idea.” He explained that the purpose of restructuring is to improve productivity by re-engineering their processes. “Recommendations on way forward will be available next year February,” he said.
Botswana Housing Corporation (BHC) has also revealed that it will fire more than 100 workers before the end of 2016, in an exercise expected to cost P42.3 million. Those fired are expected to get their separation packages by the end of December and joining the unemployed next year (2017).
The national carrier, Air Botswana is set to release 200 employees in a restructuring exercise. According to reports, Air Botswana revised organizational structure requires 350 employees as opposed to the current headcount of 522. Reports further note that the revised structure identifies all positions that are critical and highlights areas that are likely to be affected.
Earlier this year Botswana Meat Commission (BMC) forcibly retrenched hundreds of workers who refused to accept voluntary separation. KgotlaAutwetse, the Assistant Minister of Agriculture was quoted early this year saying that the BMC is “considering retrenching some of its staff in order to reduce its high costs of production and the matter is still to be considered by cabinet.”
All above mentioned parastatals have relieved number of Batswana of their jobs but other parastatals like Botswana Development Corporation (BDC) and Botswana Power Corporation have also restructured and sent some employees packing. A rational mind would think that a SONA would honestly touch on all the socio-economic developments that took place during the [period under review, and not only focus on the good, while at the same time giving reactionary statements. Those in the know estimate that over 20 000 jobs have been lost, which would have hiked the unemployment rate in the process. In his SONA, President Khama did not reveal the unemployment rate.
He only mentioned that as of September 2016 the total number of Batswana who have been employed through Economic Stimulus Programme (ESP) stood at 18,867, of whom 8,718 or 46 percent were youth. No further details were given to at least support these numbers.
Further, the head of state forgot to speak of poverty levels. With so much loss of employment, President Khama in his SONA should have updated the nation in the state of poverty. This means that those who are losing their jobs are faced with poverty, despite Khama’s vision to eradicate poverty. A study that was carried out by Statistics Botswana, released last year showed that 40 percent of the population lives in abject poverty. The study dubbed “Mapping Poverty in Botswana” says that although Botswana has faced a decrease in poverty incidence, going from 30.6 percent in 2003 to 19.3 percent in 2010, in certain areas in the country poverty remains extremely high.
STATE OF THE ECONOMIC DIVERSIFICATON DRIVE (EDD)
Economic Diversification Drive (EDD) was established in 2010. Despite government believe that she is achieving good results. President Khama took pride in the fact that since inception, the value of government procurement in locally manufactured goods stands at P2.2 billion, for the past three years. This means that each year for the past three years, government spend exactly P733 million to procure goods manufactured by Batswana. On the other hand government spends P6 billion annually on imports, most of which are food from South Africa. Only an infinitesimal portion of government spending is rather trickled down Batswana.
Still in a quest to diversify the economy, government established institutions like the Local Enterprise Authority (LEA) Selibe Phikwe Economic Diversification Unit (SPEDU), Botswana Investment and Trade Centre (BITC), which was to rake in Foreign Direct Investment (FDI) as well as several others. So far, LEA has spend hundreds of millions incubating especially aspiring commercial farmers, but the authority is yet to exhibit a commercial farmer it has produced, who contribute in feeding the nation. On the other hand Botswana continues to procure even a tomato or any imaginable food item from SA, enriching Africa’s largest economy by GDP further. LEA announced an ambitious plan of creating a leather park that would revive the city of Lobatse and employ thousands. The first time it was announced was around three years ago.
Even today, President Khama continues to speak of the leather park, just like he did last year, and the year before. The actual implementation remains an illusion. He told the national assembly that under the Leather Sub-Sector, the establishment of a Special Purpose Vehicle that will own, build, operate and maintain the Leather Industry Park is progressing.“Eight companies responded to an Expression of Interest, which was published in June 2016 to identify potential investors. Once complete, the Leather Industry Park is expected to create direct employment of 6000 to 8000 jobs,” he said.
THE TOXIC LABOUR LAWS
Who would believe that government has good faith to the labor sector, when she has recently amended laws to enable the employer to just dismiss an employee, with just a single month pay. An economy where employment creation actually means ‘Ipelegeng’, the President’s flagship employment programme that pays his countrymen a paltry P400. Well, perhaps it is a handsome pay in his standards.
In his usual fashion, Khama continued through his address to make disputable statements that in reality are hard to achieve without the buy-in of all stakeholders. In his address, the President said government continues to review labour laws so as to align them with changing needs, but reality on the ground is that government and trade unions don’t see eye to eye. If the two do not see hate each other’s’ guts, the employee suffers. That is why a sound salary increment is unheard of in Botswana, unless you are a cabinet minister President of Member of Parliament (MP).
That is why Botswana does not have a minimum wage, which will ensure decent living. To an ordinary Motswana this qualifies to be included in the SONA, so that Batswana could know how their earnings are eroded in the ever increasing food process, and skyrocketing rentals, which government has refused to also regulate.
Public sector trade unions through their federation Befepuso have resolved to report Botswana government to International Labour Organization (ILO). Trade unions have made it clear that they will oppose any change brought forward by government without their input. They have done it before and won in court. Khama further told the nation that a review of the minimum wage is carried out as part of the Revised National Policy on Incomes.