In the last column, we looked at Botswana’s economic overview, the revenue stream, expenditure account and the deficit that the country is facing. This was in response to the on-going public servants strike. On the same topic, this issue will
take a look at rising oil & commodity prices, stagnant wages and decreasing disposable income.
Anyone who has been shopping for the past 5 years can definitely testify to the constantly rising commodity prices and just on Wednesday, drivers were hit with another oil price increase, which probably won’t be the last for the near future. We know that an increase in oil prices subsequently translates into an increase in prices for many other commodities, food being just a part of it.
Well before the global financial crisis finally broke in September 2008, most people in developing countries including Botswana were already reeling under the effects of dramatic volatility in global food and fuel markets. During the crisis, we recorded one of the highest inflation levels, reaching 15.1% in August 2008 which was further fuelled by the introduction of the alcohol levy in November 2008. In 2009 as the pressures in the oil market eased and the inflationary impact of the alcohol levy fell away, inflation went down to as low as 5.8%, the lowest it’s been in over5 years. The low inflation party was in 2010 brought to an end by an increase in Value Added Tax from 10% to 12%. Many people suspect that this didn’t just mean an increase in prices by only 2%, and that some stores took advantage and increased by a much greater percentage, although there is no evidence from the inflation data that this actually happened.
Meanwhile, for the past 3 years, public servants have attentively listened to the Budget speech, crossing fingers for a salary increase only to dismay. Although the various Budgets contained nothing, the new Public Service Act became a blessing to public servants, as through it they gained a 10% wage increment due to a technical change in the number of working days in a month (although of course nobody had to work any extra days). And although it was not presented as a cost-of-living adjustment, it had the same effect.
Despite last year’s increment, the real wages of public servants and those corporations guided by government wages saw a slump in the past 3 years. While many retail prices have been moving up, public sector workers' wages have not kept pace. The mismatch between rising prices and stagnant wages has put a squeeze on workers. Employees therefore responded as a country would when in crisis, BORROW. The crisis period household borrowing grew by about 30% between March 2009-2010, and furthermore household savings took a dip. Maintaining a lifestyle, expenditure through borrowing and eating into the savings is unsustainable and with the wages being eroded fast by rising commodity prices, eventually employees have no choice but to cut down on spending and prioritize.
The public servants of the Republic of Botswana are like the Republic they serve; they have to fix their revenue stream, reduce dependence on one source and manage their funds better. The crisis hasn’t only been a wake-up call for the country, but for the employees as well. The country is not as well off as it used to be, and the impact of this has to be shared by everybody. As I mentioned last week, the Government is too big, inefficient and will eventually have to reduce in size; the public servants need to be ready for that just as the government needs to be ready for the time that diamonds run out.
Both the government and unions are at their thresh-holds yet, only one player can win the battle and the question remains; WHO WILL IT BE? How far is government willing to pull against salary increments which might lead to a blow to the economy should the strike get bigger and how far are unions willing to go given that some of their ‘soldiers’ may receive an unemployment blow?
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