In many ways, 2022 is pivotal for government and the economy in general. This is the last year of National Development Plan 11 (NDP 11) and also the final year of the P14.5 billion Economic Recovery and Transformation Plan (ERTP). In addition, this year the budget deficits that have been rolling annually since 2016-2017, are supposed to end, according to government’s stated plans.
And the latter is the one of the key events being watched for in 2022.
A tightrope act
On February 1, Finance Minister, Peggy Serame presents the eagerly awaited numbers indicating the state of the economy as well as the interventions to be taken to restore fiscal stability, strengthen transformation and move to renewed growth.
Having taken Finance over at the start of the 2021-2022 financial year, the forthcoming Budget Speech is Serame’s first, making the numbers and developments she will present a type of scorecard of the Ministry’s performance under her guidance.
Available information suggests in maiden speech, Serame could unveil a budget deficit of between P7 billion and P10 billion for the current financial year and revise the shortfall for 2020-2021 to as much as P16.5 billion, higher than the current forecast of P14.5 billion. Positive news on the horizon, however is that the crucial revenue sectors of mining and tourism appear to have escaped the threat posed by Omicron, with Debswana on track to set a sales record last seen in 2016. Whether Serame will still aim to balance the budget in 2023-2024 depends not only on the stability of the main revenue drivers, but also policies such as parastatal rationalisation, government overhaul under the RESET agenda and the ERTP.
Serame will expected to detail how fiscal stability will be restored and buffers such as the government reserves rebuilt, in an atmosphere where further domestic resource mobilisation is tightening and citizens still require greater pandemic support.
Growth for the year is expected to not only be positive, but could potentially eclipse the optimistic 9.7% forecast made by government earlier this year, on the back of the rebound in mining led by diamonds. The removal of restrictions has also allowed room for the economy to rebound, backed by the faster roll-out of vaccination and generally stable electricity and water supply.
However, pressure will be mounting on Serame to address the unemployment crisis worsened by COVID-19. She will also be asked to explain how recent interventions such as the Economic Inclusion Bill, Industry Support Facility, Middle-Class Strategy and Informal Sector Recovery Plan are performing or will perform and how they will contribute to creating jobs and supporting livelihoods.
ERTP ends
A major part of government’s efforts to revive the economy and set it on a new development path is the Economic Recovery and Transformation Plan (ERTP) approved last year as an addendum to the Mid-Term Review of the NDP 11. The ERTP was due to inject P14.5 billion into the identified priority sectors within two years, a period that ends in March 2023 which is the end of the upcoming financial year.
This year, the various ministers overseeing the priority areas will be expected to demonstrate how the funds allocated under the ERTP have been used and whether this investment has had the desired outcomes.
According to the document approved by Parliament, the bulk of the ERTP or P14 billion, was due to have been spent between the current financial year and 2022-2023. The bulk of the funding under the Plan is due to be spent on expediting the digital transition, while other high-ticket items include improving health and education outcomes as well as developing productive infrastructure.
Updates will be expected on the list of priority projects approved for funding by Parliament under the ERTP.
Sealing the deal
Before June 2022, De Beers and government are scheduled to announce the finalisation of a new agreement governing the sales of rough diamonds from Debswana. The original 10-year agreement was due to elapse in September 2020 but was extended by a year due to the difficulties caused by COVID-19. Late December, De Beers officials announced another extension to June 2022 again citing the logistical challenges presented by the pandemic.
At its heart, the sales agreement between De Beers and government governs the conditions around the sale of diamonds from Debswana through the De Beers’ process. The last such talks delivered by far the best deal for Botswana, with the migration of multibillion-dollar diamond activities from London to Gaborone. The deal also secured an independent pricing avenue for Botswana, via the establishment of the state-owned Okavango Diamond Company. The agreement before that, in 2006, saw Gaborone secure the establishment of the 45-million carat per annum Diamond Trading Company Botswana (DTCB).
While the actual agreement is a closely guarded commercial secret between the signing partners, its general provisions are publicised and these are eagerly awaited as they will spell out the future of the diamond industry in Botswana. Industry insiders expect greater concessions from De Beers on the profit share at Debswana, more ground for Botswana in the diamond value chain and commitments for citizen empowerment.
Tricky inflation
One development being tracked across the various economic strata, is whether inflation will return to the three to six percent objective range by the third quarter of this year.
Already hard pressed by the pandemic’s impact on their incomes, job security and prospects, the record levels at which inflation trended last year added salt on consumers’ wounds. Inflation has been trending at nine-year highs since June, peaking at 8.9 percent in July, then settling at 8.6 percent in November. The higher inflation was driven by increases in Value Added Tax and other administered prices such as the five fuel price increases effected last year.
The Bank of Botswana (BoB), which manages inflation as part of its monetary policy mandate, expects prices to drop to the three to six percent target range by the third quarter of this year, a revision from the original forecast that this would happen in the second quarter of the year.
The revision, the Bank said last month, was due to “intervening information” that BoB researchers did not have at the time of the original forecast. This information included increases in private school fees and developments around international oil prices.
Other analysts have pointed out that even after the BoB’s revisions made on December 2, the massive pump price increase effected later that month, means more pressure on inflation and the possibility that a return to the target range may not occur in the third quarter. The Botswana Regulatory Authority increased fuel prices by as much as P1.75 per litre with effect from December 20.
Shining bright
The second quarter of the year could see the finalisation of funding required to kickstart construction of the country’s largest solar plant, a 100MW facility planned for the Tati area near Francistown. Developer, Shumba Energy has already secured nearly US$1 million in equity funding which is going towards finalising the technical studies needed for the processes leading leading to financial close.
About P800 million is required for the solar plant’s construction and given the renewed global interest in renewables following commitments made at last year’s Glasgow climate conference, Shumba Energy is confident of finalising the funding.
The Tati plant, which will sit on a 300-hectare area near Francistown, will target the Southern African Power Pool, the region’s common marketplace for electricity. Its construction and operation will allow Botswana developers to test the region’s appetite for solar power and the appropriate pricing possible, opening the way for other projects which are currently at different levels of development.
The project will also boost the country’s efforts towards the green energy transition, under which government is aiming, initially, at having renewable or clean power contributing 15 percent of generation in the next eight years.
