It's a (WO)Men's Business World

In the past week, I had the privilege of meeting Mrs Michelle Obama, the First Lady of the United Stated of America, and some 75 extraordinary young women leaders from across Africa, in Johannesburg. While I could go on and on about our discussions, I will focus on some of my thoughts provoked by the discussion on women in business and economic development.

All over Africa, the majority of women owned businesses are in the informal sector. In Botswana, a 2007 study estimated around 67% of informal businesses to be owned by women. Further, we know that formal businesses sprout from the informal and thus those in the informal sector are drivers of the economy; an IMF report on Women and Men in the Informal Sector indicates that there are estimates of the contribution of the informal economy as a whole to GDP and that the average (un-weighted) share of informal sector in non-agricultural GDP varies from a low of 27% in Northern Africa, 29% for Latin America, and 31% for Asia to a high of 41% for sub-Saharan Africa. While some economists say that people are in the informal sector because of choice, most (me included) acknowledge that sometimes it’s by necessity. There is a significant, but not complete overlap, between working informally and being poor; especially in the lowest-return activities where the link is stronger for women than for men.

Although the informal economy is good for start-ups, there is need to encourage these setups to legalise and make their operations formal. Growth of the formal sector not only reflects growth of output in the economy but taxes which fund public services and improves the standard of living of the nations. Many of the self-employed would welcome efforts to reduce barriers to registration and related transaction costs especially if they were to receive the benefits of formalizing, such as written and enforceable commercial contracts as well as access to financial resources and market information.

There are some questions that keep coming up in my discussions; ‘what do we need to do to ensure that those in the informal sector grow to join the formal sector? For example; how do we transform the woman’s hair dressing business from under a tree to a fully fledged salon? How do we transform that one salon to a chain business?’ when one starts, the hope is to grow big and in most times, the business environment is not welcoming; the regulatory environment is a main hindrance, paper work is dubious and entry just becomes very difficult. As a precursor to attract informal sector to formalise, we need to see an increase in incentives to legalize business; lower costs and lessened hassles in business start-up, provide service and let there be equitable distribution of resources. But till then, maybe there is more to learn from the Kiosk economy in Kenya; the art of vicious negotiation, high aggression to business pursuits and the spirit of team building.

 In order for our country to reach new heights of equitable and sustained development, the ingenuity and energies of both men and women must be fully harnessed in social and economic development. I hope for more participation of women in the formal business sector, and development initiatives that fully embrace the role of women in economic and business activities and that in Botswana and worldwide, governments will start or strengthen their policies to ensure that women attain their full measure as equal partners in nation building.

Not so perfect After all, courtesy of the ECONOMIST

Before I paste the article from the ECONOMIST, I would like to mention that this is one of the most unbiased, 'tell like it is' article on the civil servants' strike in Botswana.

FOR the past four decades or so, Botswana has been Africa’s golden boy. The former British possession has grown as fast as almost any country in the world. It has built an enviable reputation for good governance and political stability. It has a decent record on civil liberties and a relatively free press. Once one of the world’s poorest countries, it now ranks among the richer middle-income ones. A lot has to do with the discovery of diamonds, of which it is the world’s biggest producer, soon after independence in 1966. But unlike many other mineral-rich countries, it has invested wisely. It has been ranked as Africa’s least corrupt country.

But for the past two months it has been shaken by its first nationwide public-sector strike. Botswana’s 2m people, generally a deferential lot, were shocked when their normally unarmed police used tear-gas and rubber bullets to disperse rioting secondary-school pupils after they went on the rampage in April. The government closed all state schools, though they have since reopened.

The affair started as an ordinary pay dispute. Permitted for the first time to join trade unions under a new law, the country’s 120,000 public-sector workers promptly demanded a 16% pay rise after a three-year wage freeze. The government, pleading poverty following a slump in the diamond market during the global recession, offered just 5%, conditional on future economic growth. Eager to flex their muscles, the newly formed unions stood their ground. But the government, the country’s biggest employer, accounting for 40% of formal jobs, also refused to budge.

The three main opposition parties along with some members of the ruling Botswana Democratic Party (BDP) have sought to jump on the bandwagon by coming out in support of the strikers. The BDP, in power for the past 45 years, was recently hailed by President Ian Khama, son of its founder and the country’s first president, Sir Seretse Khama, as “one of the most successful ruling parties in the world”. But it has been riven by factions. Last year a group of BDP backbenchers, claiming that the president, who used to run Botswana’s army, had become too authoritarian, broke away to form the Botswana Movement for Democracy (BMD). But this still left the ruling party with a fat majority.On April 18th the unions called an all-out strike, claiming that 80% responded. Even at its peak, says the government, no more than half of its employees walked out, leaving most ministries and services operating more or less normally. But the government has dealt with the dispute with a heavy hand, firing 1,400 striking health workers, including some 50 doctors, claiming they were providing an “essential service” and as such were banned under the constitution from striking. Worn down by almost two months without pay, the unions have agreed to accept the government’s revised unconditional 3% offer, provided all sacked workers are reinstated. This the government is refusing to do.

Fired by the strikers’ determination, the three main opposition parties, hitherto divided and fractious, have been trying to form a united front in alliance with the unions. A new generation of opposition leaders believe they at last have a sporting chance of breaking the BDP’s grip, though few people think it could happen soon.

One way or another Botswana is facing change. Its diamond bonanza, which accounts for nearly half the government’s revenue and over a third of its GDP, will not last much longer. Production has peaked and deposits may be exhausted by 2030. Growth has been slowing from an average annual rate of 13% in the first five years after independence to 5% in 2000-05 and 3% since then, including a 5% contraction in 2009-10. Last year it bounced back to 7% and is expected to remain at about that level for the next two years. But the government may not be able to keep spending at its present level of 40% of GDP.

For the first time since independence, the budget is in deficit. The World Bank has urged the government to slash its bloated public workforce by a quarter. But Mr Khama is resisting. With an official jobless rate of 17% (and a real one probably closer to 30%), he says he is loth to turf more people out of jobs. But neither, he insists, can Botswana go on living beyond its means.

http://www.economist.com/node/18806159?story_id=18806159

A DIAMOND SOCIETY

The 19th century pure capitalist model of society was a pyramid, concentrations of enormous wealth in a small group at the top, a not very big middle-class in the middle, and an enormous percentage of the population in the bottom part of the pyramid. And the job of the not too big middle-class was to sort of act as a go-between, on the one hand carrying money back up to the top and orders down to the bottom. Now, a diamond shaped society is what most people are aiming for and what some countries have achieved; a small upper class, a big middle class and small lower class (which if ‘wishes were horses’ would get swallowed into the larger middle class) making the society more equal.

The ugly head of income inequalities is about to rear its head once again in our country. This is not to say it didn’t exist before but with an increase across the board, the disparity between the highest paid and lowest paid becomes wider, and it’s no wonder the labour unions in their latest demands are asking for a pyramid distribution of the 3% increase of the total wage bill suggesting that the lowest paid get a higher increase while the highest paid receive a low or no increase. There most certainly is a big disparity in wages of management and the lowest paid employees and closing in on that gap even by a few Pulas could create a difference. A boost to the lower class income could see growth in the middle class and drive consumption not only for food but for other assets, moving away from hand to mouth spending, economically empowering people.

Africa’s middle class has been growing modestly in the past decade, but ADB admits that it is difficult to define who exactly falls into this group, and even harder still to establish how many middle class people there are in Africa, however, it has come up with a definition that middle income class constitutes of those spending between $2 and $20 and Botswana is among one of the countries with the biggest middle class in the continent but some growth in it wouldn’t hurt. Many have asserted that long term economic growth in the region is inexorably linked to the rise of the middle class consumer. The true test of progress is whether new riches trickle down from the elite to create a group of consumers large enough to sustain broad economic spurts in the service and manufacturing sectors which will create a virtuous circle of budding industries, more jobs, eventually benefiting the poor.

If William Thackeray is to go by, IT IS to the middle class we must look for the prosperity of Africa and so prosperity of our country, Botswana.

FANCY FIGURES, UGLY FACTS

The income gap between the rich and the poor has always been a controversial economic, ethical, political and social issue. Income inequality in terms of how the total pie is distributed among different groups has remained a hot topic among researchers as well as politicians.

Botswana has had the highest rate of per capita growth of any country in the world in the last 35 years, with a GDP per capita of about US$70 at independence in 1966, to US$7550 in 2008. However, we don’t see the benefits of growth being distributed evenly. In 2010, Botswana’s Gini coefficient sat at 0.61, translating into that 61 percent of the population share 20 percent of the wealth whilst the remaining 40 percent share 80 percent of the nation’s wealth, making it one of the most unequal countries in the world, second only to Namibia in the region. Income inequalities in Botswana widened during decades of sustained economic growth. Gini coefficient measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution, 0 expressing total equality and 1 maximal inequality. The most equal countries, like Sweden, Finland and Iceland, are also the most developed.

In the Botswana case, our high unemployment plays a critical role as it limits income options. The percentage of people living below the poverty datum line is estimated at 23 percent in 2009 (official Central Statistics Office statistics) while UNDP estimates it to have been around 37 percent in 2002. Whatever figure or calculation may be right, poverty and unemployment levels in Botswana remain very high for a country doing so well economically. The income inequalities in this country are so severe that I noted that last year when public servants’ working days got adjusted, some officials got an adjustment of P50 000 to their annual salaries while others got as little P5000. Another example is that between the wages of cleaners and recent graduates, the latter will at least get P4000 while at most, the former will receive P1000. This is a 400 percent difference!

Some researchers argue that globalisation, skill-biased technological progress, institutional and regulatory reform are responsible for the inequalities. The wider and deeper integration of national markets for goods and services through international trade and investment has increased the demand for high-skilled labour more than the demand for low-skilled labour. Disparities in labour income from wages and salaries, accounting for 75 percent of household incomes of working-age adults, are the major determinant of income inequality. Though some families may have property or investments, their share in total income remains small. Although there is no formula to fixing inequalities, it is generally agreed that reducing inequalities will smoothen out poverty issues. Skills improvement is one of the less socially and politically challenging ways. Since workers' skills aren't keeping up with the advance of technology, worker education and skills development are vital. When skill-based graduates rise and there is some growth in the private sector, then there will be a reverse of economic forces, spreading the benefits of economic growth more evenly.

Just so we remember, all has not been lost. According to the IMF, “Botswana has been among the world’s fastest growing economies over the past 40 years, with an impressive record of prudent macroeconomic policies and good governance, which has moved the country from being one of the poorest in the world to the upper-middle income range.” Considerable achievements have been made in achieving virtually universal primary and junior secondary education, health care (88 percent of the population live within 8km of a health facility, and trained health personnel attend to 99 percent of births) and access to clean water supplies (97 percent of the population have access to safe drinking water).

There is so much on inequalities or the ‘behind the shadows’ facts of our vibrant economy that I will most probably 

have to explore in future instalments of this column.

*Inspired by “Fancy Figures and Ugly Facts in Botswana’s Rapid Economic Growth” written by

 Manatsha.B,and Mahajan K. of Hiroshima University, 

BACK TO BASICS: Botswana Economic Overview

In the wake of the civil servants’ mother of all strikes, and having received numerous questions on governments ability to extend a 16% pay increment and the reasonability of the unions’ demands; I found it fitting to write this piece as the first instalment of a 2 part series which hopefully will represent both sides of the strike at the end.

Though an economic overview is given with every Budget speech; usually people only wait for the salaries part and end up missing important pieces like the revenue stream and government expenditures. Most people know that Botswana suffered a low blow during the crisis and that it was during and after the crisis that government departments started cutting back on some projects. I did field research in December and during the whole trip, there was a phrase I heard often ‘Ga gona madi’!  And yet the same people are asking for salary increments.

Government’s sources of revenue include mining revenues, tax revenue including customs and BoB revenues. The major contributor to government revenues is the mineral royalties and dividends which went down substantially during the crisis. There was about a 20 % decrease in mineral revenue in 2009 and a subsequent decline in total government revenues and in contrast there was a slight increment in non mineral tax revenue though not enough to compensate for the mining revenues loss. Currently 2011/12, we have higher estimated revenue based on expected recovery in the mining sector, while this may be; there is an expected decline in SACU revenues affecting total government revenues. As a whole, it will be a while before government revenue stream is back to its pre crisis level. The key point, therefore, is that Botswana has a fiscal revenue problem not just because of the recession, but because of adverse medium-term revenue trends.

Like other countries, Botswana’s Budget since 2009 entailed a substantial deficit; in order to provide a source of aggregate demand to compensate for the weakness of the global economy – Botswana’s own fiscal stimulus package, driven by a substantial increase in government spending. This represented short-term crisis management and the withdrawal of the economic stimulus in 2010 was inevitable and thus a shift of the balance away from increased spending towards a decreased deficit. The rule of thumb is that 3% of GDP is sustainable deficit; this is also backed up by the fact that one of the main criterions for monetary union convergence is between 3-5%, for example in SADC is a deficit of 3% of GDP. As it stands, Botswana sits on a 6% budget deficit which remains unsustainable.

The 2011/12 budget reiterated the 2010/11 budget objective of a budget balance by 2012/13 and this can only be achieved by dedication to reduced spending and a stronger revenue stream (which is highly reliant on recovery in the diamond market.).What still remains a challenge is much of the unnecessary govt infrastructure. The whole principle of infrastructural development has to change in terms of budget constraints and cost effectiveness. There is also a fundamental problem in that government is too big. Just as parastatals are being rationalised to remove overlaps and duplication, government needs do the same process. Government has been happy to add to the activities it undertakes, but has not been willing to cut back on others. Many government activities are no longer necessary or justified. This is at the core of the budget sustainability problem – and hence the longer-term challenge of reducing   the size of the government workforce remains. And it is necessary for all of the good intentions laid out by the Minister of Finance in the previous 2 budget speeches to be translated into concrete actions, and quickly.

The Economics past the Jasmine revolution

The Jasmine revolution which is sweeping through North Africa and the Middle East started with a young man setting himself ablaze because; 1. He had no job prospects in the field he studied, 2. He was thus forced to sell on the streets and when he was shut down because he couldn’t afford a trading licence, he set himself on fire in protest and then just like wild fire, the revolt spread fast across Tunisia, Egypt, Yemen and Libya to mention a few.

The turmoil in those regions isn’t just for the North Africans and Arabs, it’s a problem for everyone. The jasmine revolution is sweeping through the largest oil producers of the world giving a shock to the oil supply.   At the top of the list of things to worry about as a result of the turmoil is almost assuredly the flow of oil. Recently the Europe Brent spot price of crude oil is around $115 per barrel for the first time since the start of the recession. This price was reached as a result of speculation that supplies of oil may be interrupted because of the unrest within the region, despite assurances by Saudi Arabia, a major petroleum exporter to make up for any shortfalls in supplies. There is reason for concern as a sustained increase in the price of oil will adversely affect employment in the world where there is continued struggle to recover from job losses resulting from the recession. Though the 30% price spike over the year to date isn't big enough to be a major shock, and the world economy isn’t as vulnerable as in 2008, any further uncertainty and spikes in oil prices could lead to a resurgence of the economic crisis.

Research by economist James Hamilton of the University of California, San Diego suggests that oil prices imperil the economy when they reach a new three-year high. Steven Kopits, managing director of the energy consulting firm Douglas-Westwood, says the overall economy is threatened when the 12-month average oil price exceeds the year-ago 12-month average price by more than half. Below those levels consumer and investor expectations aren't sufficiently disrupted to make a difference. Both conditions are not far from being triggered at today's prices.

Furthermore, higher prices will hit consumer spending hard as inflation continues to rise because of higher energy expenses calculated into commodity prices. Currently, some of the concern about higher oil prices is justified. The turmoil in Libya, a country with the ninth largest reserves of oil in the world, has forced some oil companies to curtail operations and evacuate their employees. 

In Botswana, we have lagging oil prices; the latest 10thebe increase, was below expectations and doesn’t reflect full oil price increase to date. The expectation is that, we will see another oil price increase if international oil prices continue to rise. The impacts felt globally will also be felt at home; the rise in commodity prices coupled with stagnant salaries will lead to slow economic growth as consumer spending falls in real terms. Moreover, if the US and EU economic recovery is slowed down, this could have a negative impact on our economy because it would affect demand for our exports.

In conclusion, if sustained, these oil price increases have the potential to sap the strength from a global economy striving to recover from the worst decline since the Great Depression.

Open Skies

A couple of weeks back I went on a trip to West Africa that involved, amongst others, the following flights: Johannesburg to Accra, Ghana on Air Namibia; Accra to Monrovia, Liberia on Kenya Airways; and Monrovia back to Accra on Ethiopian Airways. What makes this interesting? The point is that all of those flights were on airlines from countries that were neither the start nor end point of the journey. This is an example of the “fifth freedom” of the air, whereby an airline starts a journey in its own country, proceeds to a second country, and can then pick up passengers and proceed to a third country, and vice versa. South Africa, Ghana and Liberia subscribe to this “fifth freedom”, one of the key components of an “open skies” policy with regard to air travel. What is the result? Well, for Ghana, the outcome is that Accra is a bustling air transport hub for West Africa, with flights to many regional and international destinations operated by a range of airlines, almost all of which are not based in Ghana.

What about Botswana? Unfortunately we don’t grant fifth freedom rights, even though under the Yamoussoukro Declaration, African countries are in principle committed to such open skies liberalisation. So, for example, the Kenya Airways flight from Nairobi to Harare and Gaborone cannot transport passengers between Harare and Gaborone. Apparently this has been blocked by Air Botswana who consider Gaborone-Harare to be one of “their” routes. The result: fewer air transport connections for Botswana.

Wouldn’t the granting of such fifth freedom rights help to establish Botswana as a regional air transport hub, as has been cited as a government policy objective? Of course it would. I am reliably informed that KQ has offered to operate a flight on the Gaborone-Lusaka-Nairobi route, on condition that they have traffic rights between Gaborone and Lusaka. Again, blocked by Air Botswana. Result: no direct flights between Botswana and Zambia.

Open skies liberalisation of air transport in the European Union was one of the main factors behind the dramatic growth and falling cost of air travel in Europe. Extensive evidence shows that when air travel is liberalised, inefficient state-owned airlines may suffer from increased competition, but the overall benefits – from, say, lower air fares and increased jobs in the tourism industry – far outweigh any losses. It is time for Botswana to take the plunge and fully liberalise air travel, and not let narrow vested interests block policy reform that is in the overall national interest.