Botswana outdo peers in savings accrual -World Bank
Brian Benza | Thursday April 17, 2014 14:29
According to the bi-annual 2014 Africa Pulse report, net savings have been negative in Sub-Saharan Africa since 2004, which means that the region’s growth is being accompanied by a depletion of total wealth.
“The gap between gross and net savings has increased by 31 percent over the last two decades. The declining trend in the region’s adjusted net savings over the last two decades has been driven mostly by large negative savings in oil-rich countries such as Angola, which had an adjusted net savings of -23 percent of gross national income (GNI) in 2011.
“In contrast, diamond-rich Botswana, with adjusted net savings of 20 percent of Gross National Income (GNI), has shown that resource-rich countries can put themselves on a sustainable growth path by investing a larger share of resource rents in other tangible and intangible forms of capital,” reads the report.
According to the report, Africa’s challenge is how well the region has done in converting its natural resources windfall into wealth with net savings, providing a useful measure of the changes in total wealth.
Cross-country data suggest that Africa’s resource-rich countries tend to have lower adjusted net savings than comparable countries in the rest of the world. “While the concept of adjusted net savings does not take into account the ‘quality’ or ‘efficiency’ of investments in different forms of capital, it does suggest that Africa’s resource-rich countries would need to spend relatively more in social sectors,” reads the report.
Botswana Government investments in financial assets are in the form of the Pula Fund and the Government Investment Account (GIA) both of which represent important financial buffers or cushions.
The Pula Fund, which currently stands at P48 billion, is a sovereign wealth reserve comprising both national savings built from historical budget surpluses and mineral revenues as well as foreign reserves in excess of the country’s medium-term requirements.
While the World Bank applauds Botswana’s accumulation of savings, locally, economists have previously queried the manner in which the country’s reserves in the Pula Fund are withdrawn as revenues from diamonds gradually diminish.
Barring an unlikely major deposit find, diamond revenues are expected to decline significantly after 2030 when the resources will either be depleted or will be too deep to be economically recovered. On the other hand, new negotiations of how to share SACU revenues, which for the second year running have been the largest contributor to the budget, are still ongoing.
In an earlier economic review report complied by Econsult, it was revealed that government has invested less than one percent of the revenues generated from diamonds in the past 30 years in financial assets. Economic pundits believe the amount is insufficient to meet future fiscal commitments for present and coming generations, a report compiled by consultancy firm, Econsult suggests.
According to the authors of the Econsult report, Keith Jefferis and Thabelo Nemaorani, between 1983 and 2012, government received an estimated P334 billion in mineral revenues, but had saved only P3 billion of this in financial assets – net of debt - by the end of 2011.
“Of course, some of the revenues have been invested well, in human capital and economic and social infrastructure. But it would seem prudent to have at least retained a significant portion of this income in the form of financial assets, for a ‘rainy day’ if not for coming generations,” reads the 2013 Econsult report.
An analysis carried out by the IMF in 2008 concluded that in order to provide a future income of just over six percent of GDP through to 2050, as a replacement for mineral revenues, Botswana would have to accumulate savings equivalent to 90 percent of GDP by 2023.