Botswana Government's Economic Recovery And Transformation Plan Is Underwhelming
Yesterday I went through the Ministry of Finance and Economic Development's document outlining the
With COVID-19 having put the global economy on a recession, reading the introductory parts of the document, one can sympathize with the government especially considering the fact that the crisis hit hard the country's two main breadbaskets being the diamond and tourism industries. Faced with such a dire situation, one would expect that for the rest of the document, the government would put forward concrete plans for economic recovery but alas, most of the supposed initiatives sound like "ideas" that have not been well thought out if at all thought out.
To start with the agriculture sector, the government states that its aim is to make the sector more commercially viable so that it can contribute towards the export-led economy agenda. They will do this by having subsidies for medium and large scale commercial farmers but the catch is that these subsidies will come at the expense of small scale and subsistence farmers who will no longer get any. The reason for this, according to the government, is that small scale and subsistence farmers do not contribute significantly to exports. For a government which has been preaching how it will support more citizen, especially youth involvement in farming, it is ironic that they are now going back on their word, choosing to lend their support to already established medium and large scale farmers.
Although one can try understanding the government's reasoning for offering subsidies to medium and large scale farmers, the reason for not giving the same to small scale and subsistence farmers is shallow. First of all with unemployment, especially youth unemployment, already rife in the country, subsidies for small scale farmers would have made sense as they would have promoted youth participation in the sector. Secondly, providing subsidies only for established medium and large scale farmers will further widen the gap between them and small scale farmers, making farming unattractive for would-be farmers as it would be impossible for them to eventually scale their operations to medium and large scales. By favoring medium and large scale farmers, the government is showing its lack of faith in young farmers to eventually scale their enterprises, something which goes against their supposed support for the youth.
One of the reasons that the government stated for not offering subsidies to small scale and subsistence farmers is that as part of the transformative strategy, it will be spending only on initiatives that have the potential of bringing in much-needed revenue and reducing expenses by way of cutting down on imports. It is then appalling to see the government in the same breath saying that they are going to forego levies on tourism companies which in the past have and continues to raise concerns because of the tax leakages taking place in the sector as well as lack of citizen participation. The reasoning for such has been identified as safeguarding employees as the sector has been hard hit and that is ok but why can government offer relief to tourism enterprises who won't be bringing in any revenue for it until at least next year but cannot support small scale farmers who will be paying tax and hence bringing in revenue into government coffers?
For the creative industry, there seems to be no substantial plan to neither grow the sector nor assist its recovery from the COVID-19 crisis. An initiative mentioned is the creation of cultural villages or hubs for youth to showcase their talents but the utilization of those will come at a fee. Another one mentioned is fostering the production of local content which will be shown on state-owned media like BTV but with this idea having been talked about and not been implemented for years, it is difficult for even the most optimistic of citizens to trust and believe that it will indeed be implemented this time around.
Under the mining sector, one interesting point that stands out on the economic transformation plan is the insistence of the government to reduce costs and make production more competitive by exempting mining companies from certain levies which, in government's view, are "unfair" on the said companies. Examples of such levies include the levy imposed on diesel for the Motor Vehicle Accident (MVA) Fund which the government believes has nothing to do with mining companies. The other one is the levy imposed to subsidize rural electricity connections, a levy which the government again is of the view that it has nothing to do with mining companies. One can wonder whether that tax load that has been taken off mining companies' shoulders will now be shifted to citizens or will the government rather scrape all those services benefitting from those levies i.e. MVA Fund and subsidizing of rural electricity connections. The former seems more likely.
For the informal sector, some of the initiatives look destined to trample on the very same people they are meant to help. For example, the government intends to identify and basically "grab" spots where car washes currently operate and then charge car washes who had already been occupying that spot a fee to operate on the now "revamped" spot. There are two main problems with this initiative. Firstly, it seems unfair for the government to take a spot where a car wash had already been operating then charge the occupants to use the same spot. Secondly, will all the bureaucracy that is rife with anything controlled by the government, car wash operators will now be at the mercy of the efficiency of government officials who do not have an exactly good track record of efficiency. Having to pay fees will also put a strain on the already limited financial viability of such informal businesses and the owners relying on them for employment.
The funding for all these initiatives of the economic recovery and transformation plan is where things get difficult for the supposed beneficiary of the initiatives, the ordinary citizen. Because other means of government revenue diamonds sales are currently impotent, other avenues from the national budget had to be explored to cover the 40 billion pula total cost. These include tapping into foreign reserves, external borrowing from financial institutions like the IMF and World Bank, domestic borrowing by way of bond issuance, privatization of national assets, and increasing domestic revenue generation, with the last option being fingered as the main means of financing the economic recovery plan.
Domestic revenue generation, in short, just means the citizenry should expect more taxes and levies. Some of those mentioned include an increase in Value Added Tax (VAT) from 12% to 14%, decrease of VAT exempted goods, increase of withholding tax rates like those on dividends, the introduction of carbon taxes, raising of fuel taxes, raising of water and electricity tariffs,cost-sharing initiatives like in basic education and reduction of expenditure like the aforementioned removal of subsidies for small scale and subsistence farmers. As much as one can sympathize with the dwindled government revenue as a result of COVID-19, increasing taxes with no clear way of increasing the tax base looks set to put pressure on the small tax-paying population as the taxes won't be widely distributed.
The taking away of subsidies for small scale and subsistence farmers will also, as aforementioned, further exacerbate the country's inequality problem as it will serve as a barrier to entry and growth of small scale farmers. It will also deter the youth from entering the agriculture sector which will consequently increase the social welfare bill. The relaxing of levies on mining companies' operations will also put more pressure on the already small tax base as they will be forced to take over the load from these companies who will be enjoying more profits while citizens handle their former bill.
The government's economic recovery and transformation plan does have some good initiatives which included liberalizing of beef production, privatization os inefficient national assets, promotion of ICT in different areas, government-backed loan guarantees to ensure access to capital for informal traders, deregulation of most operations of informal traders and unemployment benefit schemes. However, most of these sound like lip service as they seem not well thought out, and actually, contradict themselves in some cases. For example, if the government plans on introducing unemployment benefit schemes but no efficient means of creating employment, wouldn't that just lead to the inflating of the social welfare bill which the government will have to bear with money it supposedly does not have? The other issue is that the government failed to address how it is exactly going to deal with a lack of monitoring and accountability for public funds which has seen looting and corruption become the norm over the last few years. Without stringent monitoring accountability measures, all these initiatives will just be in vain and only benefit the tenderpreneurs and crony capitalists.
With the government having touted this economic recovery and transformation for a while, it is disappointing that this is the best they have to offer for the next four or so years. Most of these initiatives will only serve to take, take, and take from citizens by way of taxes and levies while they give minimal gains. They will also serve to increase the country's already terrible inequality woes, an example being the proposed agriculture subsidy initiative which will only benefit already established medium and large scale farmers. One can now only hope that this is just a "draft" because if this is indeed the final plan, this country is in for a rough ride over the next few years.
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