Botswana : RESPONSE TO 2012/2013 BUDGET SPEECH BY BNF LEADER IN PARLIAMENT

INTRODUCTION

1. Madam Speaker, I thank you for the opportunity to present my response to the 2012/2013 budget proposal. In doing so let me also thank the Minister of Finance and Development Planning for creating an opportunity to Members of this Honourable House by hosting them to a budget pitso twice in the course of this financial year. The objectives of these budget pitsos were to enable members of this Honourable House to appreciate government policy and challenges in managing and spending public finances, as well as budget formulation. It was highlighted during these budget pitsos that Government strategy is cost effectiveness, sustainable spending, enhancing transparency and accountability, and the new Government strategy of Public Finance Management Reform Programme aimed at enhancing the management and efficiency of public spending and ultimately providing better services to the public.

2. These budget pitsos enabled me to gain greater overview and appreciation of the macro-fiscal context and Government strategy of economic recovery, reprioritization, cost containment, and the efficient use of public resources, the combined effect of which being to substantially reduce budget deficit by 2011/2012 and lead to attainment of balanced budget by 2012/2013 financial year.

3. Honourable Speaker, during these budget pitsos I noted that Government wants to break the cycle of running Government budget on deficit and returning to a balanced budget as opposed to the last four financial years of budget deficit. The objective we were informed was to achieve budget surplus by 2013, and beyond in order to maintain a stable real effective exchange rate of Pula against the basket of currencies major trading partners, comprising the IMF’s Special Drawing Rights (SDR) and the South African Rand which are used extensively for payment of goods and services imported to Botswana from these trading partners that are not produced locally. This is a good and well appreciated financial management strategy.

INFLATION VERSUS BALANCED BUDGET

4. Honourable Speaker, on the contrary what this budget speech and those that preceded it fail to convey to Batswana is the impact of a balanced budget and stronger Pula in relation to accumulated inflation when it comes to resuming implementation of deferred Government development projects under NDP 10. Would the accumulated inflation rate not reverse the gains achieved under the balanced budget and stronger Pula ? Wouldn’t the projects implementation costs be much more expensive to develop since the inflation is not remaining constant but it is keeping on rising ? Is this strategy not heralding the final death nail on NDP 10 projects ? Has Government not postponed a problem of cost escalation due to inflation that will impede implementing approved NDP 10 projects, because costs of implementing them have more than doubled ? I urge the Minister to explain to this House whether deferment of NDP 10 development projects is not tantamount to a vicious cycle of solving one problem at the expense of the other.

Budget Analysis guidelines

5. Honourable Speaker, Economists traditionally measure the progress of a country by three macro (major) indicators of Gross Domestic Product (GDP) or Gross National Product (GNP) (the first being the value of goods and services produced in a country and the latter being the total money value of goods and services that are exchanged within a nation), inflation and employment/unemployment.

Gross National Production

6. These are not without problems, especially GNP when calculated per head, what is called GNP per head that being the average value for every person in the economy. It is deceptive or misleading for a number of reasons. GNP is misleading as an indicator of national wealth, especially for the ordinary man in the street because it is an average which does not reflect the true picture of the economy (Webster, 1990). If we were to calculate the real income per head in the economy, we would note huge disparities which are not reflected in the GNP calculations.

7. For instance, Mmegi of 24 January 2012 records that two Choppies Hypermarket directors last year earned between themselves over P 11 million, whilst former president Festus Mogae earned a ‘fee’ of at least P 500 000. It is figures like these that push the GNP up and create the impression that Botswana is going up the ladder whilst hundreds of thousands of our people live in poverty. Handouts and presidential housing donations cannot address these structural problems. We need permanent solutions.

8. Madam Speaker, what is a clear challenge to Government is economic growth and recovery from recession which is linked to the recovery of the international economy in general and the diamond market in particular for the case of Botswana . This is because the demand for Botswana’s exports is dependent on the recovery of global economy resulting in Government revenue being substantially reliant on mineral exports, especially diamonds.

ABOUT THE BUDGET SPEECH 2012/2013

9. The speech does not make the proposed budget for 2012/2013 any different from those which preceded it. The notable observations and emphasis are still the same, but no real change. The highlights of the speech and those which preceded it are :

• Poverty Eradication

• Unemployment

• Maintenance of existing infrastructure

• Service Delivery

• Completing on-going projects

• Self Liquidating Projects

• Reduction of Public Expenditure

• Reduction of Public Service

• Economic Diversification

• Lack of Skilled Labour Force

• Lack of Appropriate Practices that enhance Business Activities

• Dreary procedures of establishing a new business taking 61 days to complete

• Dreary procedures taking 167 days to complete mainly their in construction permits

• Trading across the Boarders associated with high import and export costs.

• Lack of appropriate and conducive environment for investment, competitiveness and economic diversification.

SUSTAINABLE REVENUE AVENUES

10. Honourable Speaker, the Government is emphasizing the most important lesson from the economic meltdown being the urgent need to increase and diversify revenue base and the need to find short to medium term avenues for revenue optimization which are sustainable and reduce total public spending whilst simultaneously balancing the demands to satisfy social and economic spending requirements. Honourable Speaker, yes I agree with Government that the stated objectives are good intentions with far reaching benefits to the country without any doubt if they could be realized in optimizing government revenue collections and diversify the economy.

11. The question that always haunts me most of the time is, has Government considered the operational efficiency of our tax collection systems in relation to the three parallel tax revenue collection systems such as ASCUDA for customs, BIVAT for VAT and TMS for income tax which the government applies in revenue collection ? These revenue collection accounting systems have completely no linkages to each other which pose the problem of tax leakages that makes Government lose tax revenue of what ought to be collectable revenue.

12. Some businesses are said to operate with two company balance sheets, i.e. one for the banks and the other for the tax man. Obviously the one for the taxman is crafted to show companies as operating on the loss to avoid paying appropriate tax, whilst the one to banks depict companies as profitable entities in order to qualify and obtain banking facilities for working capital. The Commercial banks are not used as part of mechanism to collect other forms of income tax except VAT. Honourable Speaker, I wish the Government to take cognizance of the fact that some countries such as Mauritius, Seychelles, and the Eastern Tigers without a lot of mineral wealth resource rely entirely on tax revenues and succeed to maintain balanced government budgets purely on account of efficiency of tax revenue collection systems that are in place. At the time of independence South Africa is said to have been collecting around R100 billion in Taxes. To date it is estimated to collect around R600 billion because they applied the Public Procurement Partnerships (PPPs) method to help establish proper and efficient systems for Tax Revenue collection.

13. Government sees as one of the options for reducing public service personnel emoluments, transfers to local authorities and public enterprises to decline in the coming financial year and beyond and for all arms of Government to focus spending on high priority projects and high return activities and scaling down spending on low return activities and programmes as well as increasing tax base. Honourable Speaker, one budget speech after the other including state of nation speeches by His Excellencies the Presidents, have been talking about economic diversification, peddling the initiatives such as Economic Diversification Drive (EDD) but none has touched on the success rate of these policy initiatives. This leads to the conclusion that Government is only sloganeering and has run out of ideas about how to diversify the Botswana economy after nearly half a century of BDP dominant rule. Honourable Speaker I will discuss this issue later on in the next chapters during my speech.

14. Botswana Government has set up Botswana Unified Revenues Services as a government revenue collecting agency. Critics are saying Botswana government uses tax collection systems that are easier to manipulate to evade paying appropriate tax both at corporate and personal level. The country’s policy is to optimize tax and other revenue collections yet it has not invested in the most credible and appropriate tax accounting system that could assist Government minimize tax evasion and easily detect tax evaders. I have already alluded to three tax accounting systems that are not interlinked which contribute to serious undetected tax leakages because the tax payer cannot enjoy one stop service for personal income, corporate company tax and VAT. Taxpayers who have to pay Government these three different types of taxes have to queue thrice in long queues. Government has got no online taxpaying facilities to expedite tax customer service and this creates serious disincentives to client wishing to settle their tax dues who end up going away without paying tax due to poor customer service environment at BURS offices. Countries such as South Africa, New Zealand Australia and a few others who used to face this problem have invested in proper tax management systems and tax payment offices to improve customer service and dreary procedures. Botswana is said to collect around 60% of what is potentially collectible tax revenue due to inadequate tax management and accounting systems.

EUROPE’S SOVERIGN DEBT CRISIS

15. Honourable Speaker,the genesis of the European debt crisis are reported to have started from late 2009, when fears of a sovereign debt crisis developed among investors concerning rising government debt levels across the globe together with a wave of downgrading of government debt of certain European states. Concerns intensified early 2010 and thereafter making it difficult or impossible for Greece , Ireland and Portugal to re-finance their debts. On 9 May 2010, Europe’s Finance Ministers approved a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF). In October 2011 euro zone leaders agreed on another package of measures designed to prevent the collapse of member economies. This included an agreement with banks to accept a 50% write-off of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion, and requiring European banks to achieve 9% capitalization. To restore confidence in Europe , EU leaders also suggested creating a common fiscal union across the euro zone with strict and enforceable rules embedded in the EU treaties.

16. While the sovereign debt increases have been most pronounced in only a few euro zone countries, they have become a perceived problem for the area as a whole. Nevertheless, the European currency has remained stable. As of mid-November 2011 it was trading even slightly higher against the Euro bloc’s major trading partners than at the beginning of the crisis. The three most affected countries, Greece , Ireland and Portugal , collectively account for six percent of euro zone’s gross domestic product (GDP). The BNF takes note of the negative impact of this crisis on world economy particularly on Botswana ’s export earnings from mineral exports which contribute significantly to GDP. The BNF further takes cognizance of the looming further world recessions which analysts forecast could be in double digits.

ECONOMIC DIVERSIFICATION

17. Botswana like the rest of Africa is rich in natural resources such as land, minerals, livestock, wildlife, fisheries agriculture, rivers, and forests which have a huge potential to generate wealth and many economic activities to create jobs and eradicate unemployment and poverty. At present Botswana like the rest of Africa extracts mineral resources using foreign enterprises or mining houses in a raw form for overseas export market to go and power industries in America, Europe and Asia creating millions of jobs there whilst people in Africa and Botswana are left hungry, poverty stricken and unemployed. No additional value is made in the process of these exports.

18. Making productive use of natural resources and upgrading primary products could help solve Africa’s several problems, Botswana included and unleash economic potential. It could stimulate a virtuous cycle of higher output, rising national productivity, higher average incomes and greater all round prosperity. Presently Botswana and some of its counterpart African states benefit from foreign exchange through raw mineral sales, from tax revenues to Governments and from a limited amount of job creation. Down streaming activities could provide an opportunity for resource based industrialization through realizing economic linkages around economic exploitation.

19. Furthermore these minerals represent irreplaceable and non-renewable assets. Heavy dependence on minerals exposes Botswana to volatile global commodity prices and resulting in economic instability. To create and sustain wealth and production in the long term, BNF advocates for Botswana natural resources to be converted into other forms of capital, preferably tradable industries that would outlast the minerals. Regrettably, after nearly fifty years of BDP continuous rule, Botswana educational system has not targeted industry based skills, education and training of the country’s manpower needs based on producing graduates equipped with skills based on mineral down streaming activities to produce value added mineral export products. This explains the Finance Minister’s lamentation and frustration about the mismatch between skills development and job market requirements. I don’t understand to whom he is lamenting to because when opposition has been talking about the poor educational standards which are not earmarked at targeting to impart kills which empower products of our education system to produce and manufacture goods based on locally available raw material, it is his party (BDP) that heavily criticized opposition for advocating the impossible dreams that mislead the nation. Now here we are, the opposition dream being vindicated by the learned Botswana Finance Minister.

20. The founding coordinator of the Botswana Diamond Hub Dr. Akolang Tombale during his wide ranging interview with Staff Reporter of Mmegi the Reporter of 22nd January 2010 Vol. 27 No. 11, Monkganedi Gaotlhobogwe quoted Dr. Akolang Tombale stating that World Diamond Trade was valued at around US $67billion during 2010. Botswana as the largest diamond producer by value used to get only US $3billion from the world diamond industry which is less than 1% for 40 years of its diamond trade. According to Dr. Akolang Tombale this was because of lack of down streaming activities of the diamond industry and he opined that as the leading diamond supplier in the world, it was high time Botswana went for diamond down streaming activities. Too little too late but whilst he admits Botswana has now negotiated and signed new mining leases which resulted with Botswana Government shares from Debswana mines rising to 80.9 percent, a figure that also includes taxes, dividends and royalties. The contents of this new mining lease agreement remain a guarded secret, too confidential to be disclosed to members of this Honourable House. According to him, countries like China , Israel , Mauritius , India and Belgium do not mine diamonds but their diamond business contributes more to their GDP than Botswana which is a leading diamond producer.

21. Honourable Speaker, the BNF advocates for Government to set rules which make it mandatory for companies operating all the mining ventures in Botswana to set up down streaming activities related to the mines they operate in order create jobs for many Batswana who loiter around the country seeking jobs which are not there. Apart from creating jobs and eradicating poverty, down streaming activities add value to our exports and increase revenue generation to Government. Ipelegeng programme where able bodied job seeking citizens who rotate to do Ipelegeng work of cutting and bush clearing in towns and villages cannot eradicate poverty from Batswana. It promotes perpetual dependency syndrome of its beneficiaries no new skills are gained doing Ipelegeng work on alternating basis.

THE SKILLS MISMATCH

22. The mismatch between skills development and the available job market requirements are the obvious results of improper education and training approaches the results of which are lack of work culture and ethics or lack of work orientation. The BNF has always advocated for skills development to commence at the early stages of our education. Something is obviously wrong if the Labour survey can expose that youth of the age range 15-19 years as unemployed. At this age range, children must be attending school or undergoing some form of tertiary training to prepare them for the job market. Their percentages of 41.4% are embarrassingly high. Our education and training is failing to invest and train this manpower resources and this is a serious loss to the nation and yet Government boast of allocating education the lion’s share of the budget (27.3 percent). This indicates these budget resources are misdirected at courses do not equip recipients with life empowering skills and it is a serious concern. The same applies to age ranges of 20-24. They should either be undergoing training or graduating from tertiary institutions ready to enter and compete effectively in the job market. The Human Development Council and indeed the BDP government stands accused of misdirecting wasteful spending on ill-conceived education and training system that is not capable of producing graduates who can compete in the domestic let alone the international job market.

UNEMPLOYMENT

23. Botswana has too small a population that given the right government intervention schemes and policies, every able bodied person in Botswana should be gainfully employed and with unemployment next to zero. There is a far too much outcry for unemployment rate of about 8 percent in the United States of America which has a workforce of more than 0ne hundred million compared to Botswana’s workforce of just around six hundred thousand with rising recorded unemployment rate of 17.8% in December 2011 compared to unemployment rate of 17.5% indicated by Labour Force Survey of 2005/2006.

24. At 17.8 %unemployment is still too high and worrisome as the Minister has himself admitted in his speech. We should aim for a single digit figure at the least. This has been worsened by sacking of striking civil servants which is a disguised and crooked public service retrenchment . Unemployment may contribute to crime and anti social behavior. Government has a duty to provide employment to its people instead of calling for bizarre measures such as legalization of prostitution (per Festus Mogae, former president and Choppies Director) which are not a decent way of developing our people. Batswana are looking to us as national leaders to create jobs that they can perform with pride and not those that strip them of their human dignity.

DEVELOPMENT AND INFRSTRUCTURE

25. There are other issues that merit attention. Whilst government needs to be commended for building dams such as dikgatlhong, Tune and others, water shortage and poor infrastructural facilities such as roads remain serious problems. In Kgatleng East alone, the villages of Matebeleng which is about 5 kmto connect to Gaborone-Francistown road has no tarred road and this limits its development.

26. During the state of nation address in November, 2010 His Excellency the President announced that Government resolve to freeze development of new projects. One of the projects which affected my constituency was the Mmamashia-Mabalane road which was after its tender was floated and bids closed and awaiting evaluation and award. This project was halted simultaneously with amongst others Francistown-Tonota road, Charles Hill-Ngcojane which the Minister announced in paragraph 71 of the speech. How did they find the way into the budget without Parliament being informed that Government has resolved to either go a limited lifting project freeze ? It is totally unacceptable and unfair to freeze projects and covert introduce some into the budget through the back door.