Government should boost private sector

Botswana’s increasing dependency on customs and excise to fund the country’s budget is not sustainable in the long term, as it is not guaranteed based on fragile economic performance.

A panellist at a recent BG Breakfast meeting held in Gaborone, which sought to review the recently presented budget speech for 2013/14 made this observation. “This is not sustainable. The country must ensure that it develops robust private sector which can be taxed for budget funding,” said Dichaba Molobe, a director of policy advocacy at Botswana Confederation of Commerce, Industry and Manpower (BOCCIM). Customs and excise include all other non-mineral taxes excluding mineral and Value Added Tax (VAT).

His view came three days after Finance and Development Planning minister Kenneth Matambo announced that customs and excise would contribute P13, 6 billion to the P44 billion overall budget for the 2013/14 financial year.  Customs and excise is the largest contributor for the budget, followed by mineral revenue (P13, 25 billion: 30 percent) and lastly non-mineral income tax at P8, 97 billion or 20,3 percent. The current budget (2012/13) is expecting customs and excise to add 33 percent to the estimated P42, 6 billion total budget. A local analyst has also agreed with Molobe’s opinion, especially that revenue from Southern African Customs Union (SACU) is not so promising based on the economic performance of the region. Botswana’s SACU revenue share decreased from P7, 9 billion in 2009/10 to P6, 2 billion in 2010/11.

Molobe explained that government must concentrate on building a strong business climate that can ensure more companies set up business in the country, which in turn will boost the private sector’s contribution to the budget funding, instead of depending on customs and excise. “Botswana is still, ranked low when it comes to ease of doing business. We need to do more,” explained Molobe, adding that government is still reluctant to increase e-government services to other departments. Botswana slipped to position 59 from 58 in the Doing Business Report of 2013 out of 185 economies. A sub committee of cabinet chaired by Trade and Industry minister Dorcas Makgato-Malesu has since been established to come up with measures that can ensure Botswana is competitive.

Overall, Molobe commended the finance minister for presenting a ‘balanced’ budget. “We can’t fund our budget with debt which will be a problem for future generations. We should live within our means,” he added. Prof. Haile Taye, a senior researcher at BIDPA concurred with Molobe. “This is a carefully thought out budget.” He praised Matambo who has even promised a budget surplus of P799 million for the 2013/14 financial year. Nevertheless, Taye raised concerns that the budget was not clear on the aspect of job creation. At 16,4 percent, Botswana’s unemployment rate is considered high by its status as a developing country.

Taye, who is also head of macroeconomics unit pointed out that there is light at the end of the tunnel for the mineral rich country which has predicted a 5,9 percent economic growth in 2013. “We have seen some improvement in Japan, US and some parts of Europe,” he added. Botswana diamonds sales depend on the consumer appetite of US citizens.

Boost to savings
Molobe welcomed Matambo’s announcement that a ten percent withholding tax will be charged on interest income paid by banks on savings by resident individuals. “This will be great for the banking sector,” he added. According to the minister, the new fiscal legislation effectively means interest income from savings by resident individuals is now taxed at a reduced rate of 10 percent. Standard Chartered Bank Botswana has also commended the legislation.

“The reduced residents’ tax is in relation to resident individuals and benefits them insofar as their net interest earned on their savings will increase due to the lower tax rate. This is positive in that it will encourage greater savings by residents, which in turn could have a positive impact on the Bank’s deposit base.” said an emailed response from the bank. Savings in Botswana have been generally low when compared to loans and advances, whether at institutional or household level. According to Bank of Botswana (BoB) Financial Statistics for December 2012, loans and advances stood at P19billion when compared to P9 billion of deposits in the same month.