NDP 11: Spurring growth

SHARE   |   Monday, 31 October 2016   |   By Kenneth Matambo
NDP 11: Spurring growth

The draft Plan covers a six year period from 1st April, 2017 to 31st March, 2023 and comprises of two Volumes. Volume I deals with Policies and Strategies, while Volume II articulates on Projects and Programmes, earmarked for implementation during the Plan period. The theme for NDP 11 is “Inclusive Growth for Realisation of Employment Creation and Poverty Eradication”. This theme is premised on the fact that, though concerted efforts were made during NDP 10 to achieve the goals and aspirations of Vision 2016, Botswana continues to grapple with three main development challenges of; poverty, unemployment and income inequalities. Specifically, this theme challenges everyone involved in the development of this country to continue striving towards improving the livelihoods of Batswana by ensuring sustainable economic development. You may recall that Government has deliberately allowed NDP 10 to run for 8 years to coincide with the end of Vision 2016 and formulation of Vision 2036. The year 2016, is also symbolic in the history of Botswana’s development as it coincides with the 50 years of the country’s independence. The year 2016 also marks the beginning of another 20 years of our next long-term vision, Vision 2036. Hence, Vision 2036 and the onset of NDP 11 are very important milestones in defining our development pathway going forward. As such, we should collectively ensure that we set the right platform necessary for success in achieving our short, medium and long-term development goals.


NDP 11 is commencing under circumstances that existed at the beginning of NDP 10. While some economies have weathered off the recession syndrome that characterised the period of NDP 10, to date, the recovery in the global economy and in many individual economies continues to be slow due to; weak  global demand, lack of consumer confidence, and low commodity prices. These major global economic risks have put more restraint and setbacks on the development path of many developing countries, especially those that are heavily dependent on natural commodity resources such as Botswana. The preparation process of NDP 11 has more or less followed the same approach we adopted during NDP 10 and its Mid-term Review. Hence, the Draft NDP 11 document before you today, was prepared under my Ministry’s leadership in collaboration with the four Thematic Working Groups (TWGs) of: Economy and Employment; Governance, Safety and Security; Social Upliftment; and, Sustainable Environment. The Draft Plan was also guided by a multi-sectoral Reference Group comprising of representatives of the: Public Sector, Private Sector, Trade Unions, Academia, Civil Society Organisations, and Parastatal organisations. The preparation process included: identifying priority areas for implementation during NDP 11; a review of the global and domestic economic fundamentals; formulating strategies for NDP 11; as well as making projections of the resource envelope. Two principal documents were prepared by my Ministry covering these issues; i.e., the Keynote Policy Paper and a Macroeconomic Policy Framework. Other key documents which informed the draft Plan include; Vision 2016, Vision 2036 Framework and the United Nations Sustainable Development Goals.


During the month of May this year, two National Stakeholders Conferences were held, one for General Stakeholders, including Public Sector, Private Sector, Trade Unions, Academia, Civil Society Organisations, Parastatals and Financial Institutions and another one for the Local Authorities. The draft Plan was also discussed by the Economic Committee of Cabinet and formally approved by Cabinet in July this year. A two days’ workshop on the 24th and 25th October, 2016, that is this week, was also held for Members of Parliament to discuss the draft Plan. The purpose of all these consultations was to give stakeholders an opportunity to further interrogate and make refinements to the context and content of the Draft Plan, before it is considered for approval by this House, and subsequent implementation countrywide. Volume I of the draft NDP 11 contains 10 chapters. The first 5 Chapters cover Macroeconomic issues, while Chapters 6 to 9 address microeconomic level issues in the form of thematic areas grouped according to their complementarity in driving socio-economic development. Chapter 10 is about monitoring and evaluation to ensure effective implementation of NDP 11.


My presentation today will focus mainly on Macroeconomic chapters 1 to 5, on the understanding that Chapters 6 to 10 will be presented later by the respective Ministers in line with the process that was followed in preparing the Plan. I should mention here that, due to the recent creation of some new Ministries and renaming of others, the names of some Ministries in the document before you may be slightly different from the current reality, as the draft Plan was sent to you before these new developments. However, I wish to assure the House that, my Ministry will amend the affected Ministry names accordingly in the final document. I should also indicate that these new developments do not in any way affect the content and context of Volume I, but will certainly require a slight modification to the presentation of Volume II. I now turn to the individual Chapters 1 to 5, which constitute the main thrust of my presentation.

CHAPTER 1: COUNTRY PROFILE AND PEOPLE
This Chapter provides geographical background information, political structure and physical features of the country for purposes of readers unfamiliar with Botswana. It therefore, does not change much from the previous Plans. Suffice to note that politically, Botswana’s democracy has matured from a few parties at independence to the current status where there are several opposition parties. Climate change has also become a topical issue, with the country periodically experiencing severe droughts that affect both the wildlife and livestock sub-sectors of our economy. The frequent droughts have changed Botswana’s landscape and biodiversity, and I am sure you will be hearing more about some of these developments during the presentation by the Minister responsible for environment and tourism.

CHAPTER 2: POPULATION AND DEVELOPMENT
The main issue emerging from this chapter is that, most of the key targets of the 2010 Revised National Population Policy (RNPP) have been met. To this end, the reduction in the total fertility rate (i.e., the average number of children born to a woman over her lifetime), declined from 3.3 children per woman in 2001 to 2.8 in 2011, against a target of 3.4 by 2011. This low fertility rate offers the country an opportunity to benefit from the demographic dividend, which is reflected by a significant increase in the ratio of working-age adults relative to young dependents (those aged between 0-14 years). Other benefits include the reduction of pressure for developing infrastructure such as those for health and education, as well as the possibility of a rise in average per capita income resulting from fewer individuals provided that our economy continues to grow.


Significantly, the objective of eradicating absolute poverty during NDP 10 was almost achieved, as the proportion of individuals living in abject poverty or below $1.25 per day, decreased from 24.5 percent in 2002/03 to 6.4 percent in 2009/10. As a result, Botswana has surpassed the Millennium Development Goals target of reducing extreme poverty by half in 2015. In addition, the proportion of people living below the national poverty datum line declined from 30.6 percent to 19.3 percent over the same period. In terms of the implementation of the Millennium Development Goals (MDGs), Botswana has achieved most of the targets including: eradicating extreme poverty and hunger; achieving universal primary education; reducing the under–five mortality rate by two thirds; reducing the spread of HIV/AIDS; and reducing the number of people without access to safe drinking water and basic sanitation by half. However, there is need to improve on maternal health, to develop a global partnership for development and to ensure environmental sustainability. These will be tackled as part of the implementation of the UN Sustainable Development Goals during NDP 11 and Vision 2036. These were not met due to non-adherence to health issues by some pregnant mothers, limited health facilities and non-existence of certain policies.

CHAPTER 3: REVIEW OF ECONOMIC PERFORMANCE DURING NDP 10

Chapter 3 provides an assessment of the performance of the domestic economy during NDP 10 and covers issues of Gross Domestic Product growth, economic diversification, Government budget, external sector development, employment creation and policy environment during NDP10.

GDP Growth
In terms of GDP growth, the NDP 10’s average actual growth rate per annum was 3.9percent against the projected growth rate of 3.3 percent. This meansthat, the economy performed slightly better than the original forecast. However, the actual average growth rate was below the Vision 2016 target growth rate of 7.5 percent, owing to the; merchandise imports which exceededmerchandise exports, slow growth in domestic final consumption expenditure causingweak aggregate demand in the economy, and slow growth in gross physical capital formation.

Economic Diversification
There are signs that economic diversification occurred during NDP10, with the non-mining sectors of Trade, Hotels & Restaurants, and Banks, Insurance & Business playing a major role in driving the growth of the economy, while Mining sector declined. The Mining sector contracted by an average of 3.4 percent per annum, during the entire Plan period, while the Non-mining sector grew by 5.6 percent per annum. The increased contribution of Non-mining sectors saved the economy from experiencing full-blown recession. This underscores the significance of continued vigorous efforts to diversify the economy and support of the non-mining sector.

Government Budget
The outturn for Government revenues during NDP 10 was higher than the overall NDP 10 projected revenues. For the first four years of the Plan, revenues significantly exceeded the target for NDP 10. However, from 2013/14 onwards, the revenue outturn underperformed the NDP 10 targets. Of significance is that, the Government revenues were still driven by Mineral and Customs and Excise Revenues, (mineral revenues accounting for 35.8 percent of total revenues and Customs & Excise accounting for 26.8 percent). This calls for urgent efforts to increase and diversify the revenue base. The NDP10 target was to reduce Government spending as a ratio of GDP from the NDP 9 level of 37.5 percent to 30 percent. The actual outturn is estimated to be 31.1 percent of GDP by the end of the Plan, which is closer to the NDP 10 target. The accumulated overall Government budget balance for NDP 10 is an estimated deficit of P8.4 billion, against P31.9 billion, which was projected in the Plan. This positive development is attributable to a number of factors such as; prudent management of the budget by Government; low implementation capacity in the economy; and some positive variance in revenues achieved during the Plan period. It is encouraging to note that, for the entire NDP 10 period, the Government was also able to maintain one of its fiscal rules of funding recurrent expenditure through non-mineral revenues. The fact that mineral revenues were not used to cover recurrent costs is a sign of budget sustainability.

External Sector Development
The overall balance of payments has been in surplus for the entire NDP 10 period, except in 2010. However, the merchandise trade part of the current account was in deficit for all the years of the Plan, except 2013 and 2014. On the other hand, the Services Account was in surplus for the entire Plan period. A worrisome trend during NDP 10 was a steady decrease in the share of non-traditional exports, as part of total exports. For instance, while in 2009 the share of non-traditional merchandise exports was about 10.0 percent, it decreased to 8.0 percent in 2010 and reached 3.0 percent by 2013. This suggests that limited export diversification has taken place. In order to bolster economic diversification during NDP 11, particular attention should be on creating new and growing non-traditional exports. On the other hand, a modest increase in the share of exports of services was registered during the Plan period.

Employment Creation During NDP 10
One of Botswana`s key challenges is employment creation, which will continue to be addressed aggressively during NDP 11. For instance, formal employment grew at an average rate of 1.5 percent per annum during the Plan period; 3.3 percent in 2010, 2.1 percent in 2011 and decelerated further to 0.3 percent in 2015. The private sector as the main employer, absorbed 56.0 percent of the workforce, followed by Central Government at 30.0 percent, and 14.0 percent was contributed by Local Government. The fact that the private sector as the main employer is growing at a small rate of 1.2 percent, is a major concern that should be addressed during NDP11.
Macroeconomic Policy Environment in NDP 10. At the onset of the NDP 10, it was envisaged that the global financial and economic crisis was going to undermine the implementation of some of the then on-going, high return projects that were pivotal to economic growth. Hence, Government increased development expenditure by 27 percent. This expansionary fiscal policy decision was taken to stimulate economic growth. In the same vein, through expansionary monetary policy, the bank rate was reduced several times during NDP 10 and this led to reduction of the Commercial Bank’s prime lending rates from 11.5 percent in 2009 to 7.5 percent by July 2016. During the same period, conducive macroeconomic environment was also created by the decrease in inflation rate from an average rate of 7.4 percent in 2010 to 2.6 in August 2016. The exchange rate policy, on the other hand, was managed based on the basket mechanism, where the main variables are the currency weights and the rate of crawl. The basket currency weights are based on the country’s trade patterns while the annual rate of crawl is based on the differential between Botswana’s trading partners’ rate of inflation and domestic inflation and these are used to measure competitiveness of Botswana exports in global markets.

Microeconomic Policy
With respect to the microeconomic policy, Botswana has over the years invested heavily in infrastructure. However, requisite skills and technology, particularly ICT and engineering are still lacking. Furthermore, the regulatory framework needs to be improved to facilitate quick and timely investment decisions. In general, the macroeconomic policy environment was conducive for economic growth during the NDP 10 period, while the microeconomic environment was relatively more constrained. Therefore, strategies for addressing these constraints have been outlined in the various chapters of the Plan.

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CHAPTER 4: MACROECONOMIC STRATEGIES FOR NDP 11
To achieve the NDP 11 theme of “Inclusive Growth for the Realisation of Sustainable employment Creation and Poverty Eradication” the Draft Plan identifies a number of strategies drawn from the six national priorities, which are: (1) development of diversified sources of economic growth; (2) human capital development, (3) social development, (4) sustainable use of natural resources, (5) consolidation of good governance and strengthening of national security, and (6) Implementation of an effective monitoring and evaluation system. However, in this presentation, I will only focus on the Development of Diversified Sources of Economic Growth, Domestic Expenditure as a Source of Growth and Employment Creation, and Export-Led Growth Strategies. The other critical areas will be covered by other Ministers as they present their respective thematic chapters.

Development of Diversified Sources of Economic Growth
Developing diversified sources of economic growth tackles the twin problems of declining growth and lack of employment opportunities, especially, for the youth. It is for this reason that initiatives such as Beneficiation, Economic Diversification Drive (EDD), Cluster Development, Special Economic Zones, Promotion of Local Economy Development and Research, Innovation and Development, will be given the highest priority during NDP 11. Beneficiation will be targeted in sectors such as Mining, Tourism and Agricultural products in order to develop and establish downstream industries in the economy. In addition, EDD will continue to be bolstered by the high level of research, innovation and development, which will be given paramount attention during the implementation of NDP 11. These initiatives will be supported by Local Economic Development and Special Economic Zones which will be established in various districts and regions. Details on these are given in chapter 6 under Economy and Employment thematic area.

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Domestic Expenditure as a Source of Growth and Employment Creation
The review of NDP 10 revealed that domestic absorptive capacity as measured by household consumption has been low. This has resulted in low aggregate demand in the economy and hence low economic growth. In this regard, NDP 11 recognises the need to increase spending in the economy as a strategy for generating economic growth and enhance employment opportunities. An increase in employment opportunities has the potential to boost household consumption and increase domestic demand. To this end, Government has introduced the ESP in order to promote employment opportunities in the; construction industry, agriculture, manufacturing, and tourism sectors. This is the reason why there will be substantial budget deficits for the first three years of NDP 11.


Export-Led Growth Strategy
Export-led growth is critical in promoting sustainable economic growth, as well as in creating sustainable employment opportunities. By definition, the export-led growth strategy is a trade and economic policy, aiming to speed up the industrialisation process of a country by producing and exporting goods and services for which the nation has a comparative advantage. Such a strategy is therefore premised on the notion that export markets can complement the domestic market by generating the needed demand and employment creation. To this end, a detailed Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis will be undertaken in order to identify the country’s comparative advantage. The strategy will draw from the cluster model, with an initial focus on diamonds; cattle; tourism; mining; finance and other services. It must be emphasised that for this strategy to be successful, it should be driven by the private sector. 

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CHAPTER 5: MACROECONOMIC PROJECTIONS FOR NDP 11
I wish to preface my presentation of the NDP 11 Macroeconomic Projections by referring to the recent development regarding the liquidation of BCL Group of companies, and its likely impact on the domestic economy. Without doubt, the liquidation of the BCL Group of companies will have economic and social implications, especially on employment. However, in terms of growth of the economy, exports, and Government revenues, the placement of BCL Group of companies under liquidation will have minimal direct impact; hence the projections of the macroeconomic variables such as GDP and Government revenues contained in the draft Plan distributed to ourselves remain valid. The Ministry will however be monitoring any developments with respect to the BCL liquidation process closely, with a view to updating if necessary, the macroeconomic projections contained in the draft Plan, before finalising it for printing and publishing.  However, having said this, I must indicate that the amount required to fund the BCL liquidation process will be provided during this financial year. Furthermore, given the challenges with the energy, water and education sectors, there will be need for additional funding during the current financial year. In order to avoid worsening the budget deficit for 2016/17, Government will have to reprioritise, both the recurrent and the development expenditure to cater for these additional funding requirements. I will now turn to the projections of resources that are likely to be available during NDP 11. I must indicate that projections in the draft Plan are in three scenarios which are the; Base Case, Pessimistic (a situation worse than the Base Case) and Optimistic (a situation better than the Base Case) scenarios. However, I will concentrate on the Base Case Scenario as it is the most likely scenario that will form the basis for formulating the Government budget for the entire Plan period.


Base Case Scenario
As per the Base Case Scenario, real GDP is expected to grow by 4.4 percent per annum, with the mining sector growing at an annual average of 2.8 percent over the NDP 11 period. Non-mining sectors are expected to grow modestly by 4.6 percent annually, mainly driven by; Water and Electricity sector which is expected to grow by 18.4 percent; Trade, Hotels and Restaurants sector is projected to grow by 6.8 percent; the Transport and Communications sector at 6.0 percent; and Banking, Finance and Business at 4.1 percent. On an annual basis, total revenues at the onset of NDP 11 are estimated to be P52.76 billion, and will grow by an average of 6.7 percent, reaching P70.78 billion in 2022/23. Overall total revenues to be generated for the entire Plan are projected to be P365.08 billion. Mineral revenues are expected to contribute a large share to total revenue of about 34.1 percent during the entire Plan period. Total expenditure and net lending over NDP 11 is projected to reach P364.03 billion, of which the recurrent budget stands at P262.4 billion and the development budget is estimated to be P101.4 billion, resulting in a modest cumulative estimated budget surplus of only P1.05 billion by the end of NDP 11.

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It is worth noting that with the ongoing uncertainty in the global economy and declining commodity prices on one hand and the need to create employment opportunities through increased Government spending on the other hand, the Government budget is projected to be in substantial deficits in the first half of the Plan period, but forecast to only record budget surpluses in the last three (3) years. It is important to note that the projected non-mineral revenues of P240.24 billion are lower than the projected recurrent budget of P262.4 billion. This suggests possible non-sustainability of the projected NDP 11 budget, as the recurrent expenditure will not be fully financed from the non-mineral revenue source. This alone calls for continued measures to strengthen tax administration through simplification and strengthening of tax collection systems, as well as implementation of cost recovery measures.


To ensure that revenues from non-renewable sources are largely invested in physical, financial and human capital that have potential to promote future growth, as well as to take into account the interest of future generations, a Fiscal Rule is being proposed as part of NDP 11. The Rule’s main elements are: to finance the recurrent budget from non-mineral revenues; and to invest 60 percent of mineral revenues in physical and human capital, while the remaining 40 percent will be saved as financial assets for future generations.

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CONCLUSION
In conclusion I wish to reemphasise that the review of NDP 10 clearly shows that the domestic economy is still highly dependent on minerals and customs and excise revenues, while the overall economy remains relatively undiversified. This means that more needs to be done to foster economic growth and to expand revenue sources. It is for this reason that NDP 11, like its predecessors, puts more emphasis on diversification efforts to create employment opportunities, reduce income inequalities and poverty. The private sector and other development partners will have to play a major role in these efforts. Government on the other hand, will spare no efforts in ensuring the continued existence of a facilitative policy environment. The NDP 11 average GDP growth rate is estimated to be slightly higher than that of NDP 10, and a small cumulative budget surplus of about P1.05 billion is also expected. As policy makers, we are all aware that the economic climate, particularly the global one, can always change for the worse. Therefore, our projections figures suggest that there is an increased need to be more prudent in our expenditures. They also suggest that there is a more urgent need in identifying not only alternative sources of economic growth, but also alternative sources of revenues. It is certainly the time now to closely pay attention to the quality of the projects that Government implements, as well as the efficiency with which they are implemented. Concerted efforts to expand our tax base as well as consolidation of collection of Government fees and levies are needed, and appropriate cost recovery measures will be implemented.


*The Minister of Finance and Economic Planning Kenneth Matambo’s presentation of NDP 11 Draft Plan for debate and adoption by Parliament.