With the first Budget Speech of the decade set to be delivered by the Honourable Minister of Finance Dr Thapelo Matsheka on the 3rd February 2020, we have been provided with a good opportunity to look backwards, review and then dream forward. A new decade, coupled with a new Presidency, provides us with the perfect opportunity to assess how our economy has evolved in the past decade and where we would like it to go in the coming ten years. A renewed excitement on prospects of transforming our economy exists in large part to the His Excellency Dr MEK Masisi’s championing of transforming Botswana into a knowledge based economy by taking advantage of the 4th Industrial Revolution.
The question is, does our budget reflect these ambitions?
A Decade in Review:
The 2009/10 financial year was a particularly difficult one for Botswana with the full effects of the 2007/8 Financial Crisis finally coming to roost. Debswana had been forced to temporarily shut down operations and revenues from mining had dropped dramatically, highlighting the pressing need for diversification of the economy. During this decade, we saw the Total budget grow 62% from BWP39 billion in 2009/10 to BWP64 billion in 2019/20 while gross domestic product grew 189% from BWP73 billion to BWP212 billion in the same period. This is a serious improvement because government expenditure in 2009/10 was 54% of GDP but now accounts only for 30% of GDP in 2019/20, showing a reduction in dependence of the country’s economy on the government.
Mineral revenues were the largest contributor to our budget during 2009/10 at 30% (lower because of reduced revenues in mining), with SACU revenues funding 26% and taxes from non-mining industries providing 19%. VAT and other revenues and levies provided 13% and 12% respectively. Since then we saw an increase in mineral revenues contribution (37% in 2015 and now at 35% in 2019) signalling that our diversification efforts have not been fruitful. SACU revenue contributions have dropped during that period (26% in 2009/10 down to 23% in 2019) whilst non-mineral revenues have stayed constant at 19% throughout the period. This signals a real challenge in diversifying the economy
When it comes to expenditure , a worrying trend started to emerge. In 2009/10, the Recurrent Budget was 66% of total budget, whereas the Development Budget was 33%. In 2015 and 2019, these ratios had moved to 73% Recurrent Budget and 27% Development budget. This implies that we are now spending more of our budget on recurring expenses compared to funding new projects which would likely be more productive and reduce unemployment. (If we use the household budget as an example, this is the same as spending more on recurring monthly expenses like food, rent/mortgage, security etc rather than spending on new purchases or developments in the house). We are hence budgeting more to maintain a status quo rather than budgeting to grow.
Our expenditure also reflects that Botswana is welfare focused with 53% of our budget spent on education, health, local government, defense and general public administration ministries. Education continues to be the biggest expenditure with 24% of the budget in 2009/10 down to 20% in 2019/20. The Ministry of Health has grown from 9% to 12% in the same period, whilst Defense and Local Government have hovered steadily around the 10% mark. All of the other ministries consume between 1% – 3% of the budget each though some have showed considerable drops in the same period largely due to changes in ministries over the decade.
Due to the Financial Crisis that occurred just before the end of the decade, we saw Botswana forced into a budget deficit of a total of about BWP30 billion over this period. This deficit represented about 3% of government expenditure and was financed almost completely by domestic borrowings and issuances of government bonds.
In summary, the past decade has seen Botswana lose the diversification fight with mineral revenues continuing to be the main revenue generator, we have skewed our budget towards recurrent spending like salaries, most of our spending is on social welfare efforts rather than production or growth and we have seen a small dependence on funding using deficits.
So where to, next?
During this past decade, we saw the beginning of Vision 2036, which was built upon the 2030 Agenda for Sustainable Development. Vision 2036 which aspires for “Prosperity for All” hinges on 4 pillars being Sustainable Economic Development, Human Social Development, Sustainable Environment and Governance, Peace and Security. His Excellency President Masisi has also lit the fire for the country to take advantage of technological innovations to lead us to this Promised Land by digitally transforming the country to become a Knowledge based economy. In light of the above, does the evolution of our budget reflect our aspirations? If not, what would we hope to see in future?
Pillar 1: Sustainable Economic Development
This pillar will only be achieved by policies and spending which encourages growth and economic activity. The advent of new technologies such as internet of things, automation, data analytics and robotics can encourage efficiencies and growth and usher us into the 4th Industrial Revolution. Unfortunately our budget getting skewed towards recurrent spending rather than development does not encourage this. NDP 11 is also skewed towards maintenance of existing infrastructure rather than new projects. We are trying to maintain the status quo rather than chasing growth. These failings are being reflected in Botswana ranking 91 out of 141 economies in the World Economic Forum Global Competitiveness Index. It is also worrisome that we also rank 94th in the world when it comes to our government policy and responsiveness to digital business.
Ministries such as Agriculture (which provides largest potential for employment), Trade and Investment (which houses majority of our FDI attraction, SME growth and economic diversification efforts), Science, Research and technology (where we expect to see innovation that will drive us into the 4th Industrial Revolution) and Youth, Sports and Culture (which have potential for employment creation in sports and creative arts which drive a knowledge economy) only account for less than 10% of our budget. We therefore need to consider driving more budget and focus towards employment creating ministries in a bid to grow the overall economy as well as increasing the proportion that goes to the development budget (considering our Infrastructure development is ranked 108 out of 141, we should not be holding back the development budget).
Pillar 2: Human Social Development
This pillar aspires for an inclusive society that is educated, has gender equality and has opportunities for economic participation for all. While the amount spent on education, health and local government are commendable, we have to interrogate the resultant benefits and see whether we are getting value for money for the expenditure.
Whilst Botswana ranks 1st in the world on expenditure on education, our overall skills are ranked at 94th in the world with skills of graduates at 114th and entrepreneurial culture is ranked 99th. Our health care system is also ranked 111th. Considering that over 30% of our budget goes to these 2 ministries, it is imperative we assess whether we are attaining value for money. We are also challenged in inclusivity as services and opportunities differ greatly between rural and urban. Basic needs such as schools, electricity, water and health must be invested in to get to the rural areas and leaning on technology to deliver some of these can help but your best bet is increasing infrastructure spending via the development budget.
Pillar 3: Sustainable Environment
This pillar aspires for us to shift towards sustainable use of resources. This speaks a lot to diversification away from minerals towards a knowledge service based economy. Currently our revenue sources implies this diversification effort is faltering but a renewed investment in technology and skills could push us in the right direction. An increased investment in productive ministries such as Agriculture, Science and technology and Trade will bode well for diversifying away from minerals, coupled with increased development spending on infrastructure and service delivery especially in rural areas.
Pillar 4: Governance, Peace and Security
This pillar aspires to have Botswana remain peaceful but also to strengthen accountability structures and entrench good governance. In the Voluntary National Review on Sustainable Development Report for 2017 published by the UN and the Government of Botswana, it is acknowledged that one of Botswana’s biggest challenges is accountability as a result of poor data collection and management. The lack of data means decisions are often not evidence based and feedback mechanisms are no existence. The Global Competitiveness Index 2019 ranks Botswana 70 out of 141 in overall institutions whilst ranking us 88 on budget transparency, 113 on public sector performance and 80 on corporate governance. The country therefore needs to invest heavily on technology available to digitize government services which will unlock the potential for data analysis and management and deliver us to the promised land of evidence based decision making.
In closing, we therefore hope to see an evolution of the budget in the next few years. Chief among those should be a move towards increasing the proportion of the development budget, increased investment in technology to ensure excellent service delivery, intentional funding of research, innovation and productive Ministries to encourage growth and create jobs and a large focus on value adding investment by increased data analytics and management that will improve evidence based decision making.
