How job losses can occur

cycles are synonymous with capitalist economies. So, no matter how well governments run their economies, they will not be immune to recessions. Recessions, with their booms and slumps, are an unavoidable part of life! All that we can do is to try and ensure that the length of a recessions is as short and less devastating as possible, and that the upturn in the economy is sustained for as long as possible. And that’s a tall order!

Since 1970, major global recessions have occurred in 1973/ 74, 19801983, 1990/ 91, 2001/ 02, 2008/ 09 and 2020/ 21. During the last recession, Botswana’s GDP contracted by 8.5 percent in the year 2020 and the economy shed some 67 000 jobs. Diamond sales were also temporarily suspended as borders were closed due to COVID- 19. And to aggravate matters further, diamond prices were depressed.

Now it is the responsibility of governments to reduce the negative effects of a recession and to kick- start the economy into life again. In addition to rising unemployment levels and poverty, mental health problems, crime and suicide also worsen during a recession. So, there is often much political pressure for governments to quickly mitigate the effects of recessions. Governments can achieve this through changes in both monetary and fiscal policies.

Monetary policy is the policy adopted by the monetary authority of a nation to control the money supply and/ or the interest rate for short- term borrowing. The monetary authority is the institution – a country’s central bank– that manages the country’s currency and money supply. In the case of Botswana, this is the Bank of Botswana. To stimulate and grow the economy, and increase demand for goods and services, a government will implement an expansionary monetary policy by increasing money supply and reducing interest rates. Less expensive credit will then entice business owners into borrowing money so that they can expand their businesses and so create much- needed jobs.

Fiscal policy is the use of government revenue collection and expenditure to expand a country’s economy. This is often administered by a government department. To stimulate the economy, government will implement an expansionary fiscal policy which involves government spending exceeding tax revenue. This is achieved by increased spending on public works, such as roads, schools, etc, and tax cuts. Cutting tax will increase the purchasing power of households since they will now have more money available to spend and so demand will increase. Such policies will likely result in more jobs.

Monetary policy has some benefits over fiscal policy. Firstly, it reduces political influence as it is set by the central bank. Monetary policy is also quicker to implement since the decision to increase government spending may take a long time to figure out. Budget allocations for each government ministry are determined only once a year and announced in the Budget Speech. And if it is found necessary for government to pump extra money into the economy, then either financial resources may be insufficient or money may have to be moved from one ministry to top up the budget for another. And this may, indeed, be unpopular since one ministry will now have less money to finance development projects which it had previously earmarked for implementation during the financial year.

Government expenditure can be funded in many ways such as taxation; borrowing money, for example, from foreign banks or the International Monetary Fund; selling of fixed assets and dipping into the nation’s foreign exchange reserves. Raising money will be easier if the country has previously enjoyed budget surpluses as in the case of Botswana, a country well- known for its financial stability and prudent management of the economy.

Government can also put in place other measures to stimulate the economy, for example, by imposing tariffs on imported goods. This will reduce imports and so will enable domestic companies to expand production. However, this will conflict with the aims of the newly created African Continental Free Trade Area ( AfCFTA) which seeks to abolish or reduce tariffs. Also, government can reduce or remove state regulations in the economic sphere. Fewer and simpler regulations lead to raised levels of competitiveness and therefore higher productivity and levels of employment. Contrary to expectations, the Botswana government increased taxes during the 2020/ 21 recession. In April 2021, VAT was increased from 12 to 14 percent thus reducing the purchasing power of many consumers and so reducing demand. This is because VAT is a regressive type of tax; after all, every time we go shopping we are paying VAT, whether we are millionaires, teachers, cleaners or unemployed. And this, together with the recent 22 percent hike in Botswana Power Corporation ( BPC) tariffs, has, in part, contributed to a rise in the rate of inflation which, as in July 2021, stood at 8.9 percent, as compared to a respectable 2- 3 percent a few years ago. But high inflation rates are more typical of the later stages of an economic upturn, not in recessions where low demand usually is accompanied by a fall in prices and a lower inflation rate. All this means that the recovery from the current recession may be delayed since most businesses will not, at present, be in a position to expand their businesses. However, despite this, other signs now indicate that Botswana may now be in the early stages of an economic recovery. Firstly, there has been a significant increase in the value of our exports in the first quarter of 2021 which, at P24.1 billion, was a staggering 38.4 percent increase on the figure recorded in the first quarter of 2020. The main reason for this is the strong recovery in the diamond market with a marked increase in demand ( and hence higher prices) for our stones from countries such as China, India, the United Arab Emirates and the USA. Some of this growth may be attributed to a marked decrease in spending on travel and tourism due to movement restrictions and lockdowns caused by the COVID- 19 pandemic. As a result, more money is now available to consumers for buying diamond jewellery. Sales of diamonds in the first half of 2021 – US$ 2.5 billion – was a staggering 178 percent higher than the corresponding figure for the first half of 2020 – just US$ 906 million. And there was a massive jump in exports from May to June this year! This was largely attributed to the rise in diamond sales from P4.280 billion in May to P6.430 billion in June. And more good news; in July this year the value of Botswana’s exports exceeded the value of its imports and so the country recorded a healthy trade surplus of P373.2 million.

Also, the International Monetary Fund ( IMF) predicts that our economy will grow by 8.3 percent this year, a figure that is well above what we have experienced in recent years. Economic growth and employment may also be stimulated if the Economic Recovery and Transformation Plan ( ERTP) is successfully implemented. And the recently revised African Growth and Opportunity Act ( AGOA) may also increase Botswana’s exports to the USA. Furthermore, the recent opening of the Kazungula bridge might stimulate trade and create more jobs. However, all this may, in some part, depend on a successful COVID- 19 vaccine rollout – to date, just 10 percent of Botswana’s population has been fully vaccinated. Only when the country has achieved herd immunity – when some 80 percent of the population has been fully vaccinated – will we see the end of the pandemic in sight and a return to sustained economic growth and job creation. To conclude, over the last few months we have looked at the causes of unemployment in Botswana. From next week onwards, we will consider what can be done to reduce the numbers of jobless people in our country.