A stronger private sector will help drive development in Botswana
Kevin Njiraini - Marie Francoise Marie-Nelly | Monday July 25, 2022 06:00
Rightly lauded as an African success story, the country of almost two and a half million people has been powered largely by a trio of flourishing sectors, diamond mining, tourism and agriculture, that have helped to reduce poverty and inequality and improve livelihoods. However, over the years, exports have remained undiversified with diamonds still accounting for nearly 90 percent of exports and government has remained a disproportionately large player in the economy, while the country has enjoyed limited gains in employment and productivity growth.
Then came COVID-19. The pandemic severely reduced revenues in Botswana’s important diamond mining and tourism sectors, triggering an 8.5 percent contraction in GDP in 2020 and an uptick in unemployment to 26 percent in 2021, with the jobless rate even higher among young people and women. While diamond revenues have recovered, these setbacks, which are affecting all major sectors of the economy, especially agriculture, illustrate Botswana’s vulnerability to shocks, including climate change.
A new report from IFC and the World Bank, the Botswana Country Private Sector Diagnostic (CPSD), argues that now, and in the face of new challenges, including rising global inflation, Botswana has an opportunity to reshape its economy and build a stronger, more sustainable foundation for growth and development. It explores how Botswana can harness the power of the private sector to speed economic diversification and stimulate more resilient, greener growth.
The CPSD takes an in-depth look at Botswana’s economic challenges and opportunities and finds untapped potential to drive private sector growth in the country’s energy, water and sanitation, and tourism sectors, among others. The CPSD also highlights areas where regulatory reform and reduced participation of the state in productive sectors would help attract and speed up private investment—and ways the country can diversify its economy beyond diamonds.
For energy, Botswana is dependent on electricity imports from South Africa and Zambia. Though 72 percent of Botswana’s urban population has access to electricity, the bulk of the country’s power comes from climate-unfriendly coal and diesel. For a country bathed in sunshine throughout the year, solar is a clear alternative to fossil fuels and Botswana aims to have at least half of its energy supply to come from renewables by 2036. This ambitious target, if underpinned by well-crafted sector policies, will be a big incentive to private investment in generation, transmission, and distribution.
Tourism is another important sector in need of investment. The CPSD found that Botswana could strengthen and diversify its tourism industry with a more coordinated approach to attract private investment into lodges and other tourism-related infrastructure including transport, hotels, camp and caravan sites, and food and hospitality services.
In the water and sanitation sector, the CPSD highlights Public-Private Partnerships (PPPs) to attract private finance and skills to identify financially viable water-saving projects to rehabilitate existing water and water treatment plants, and to build new ones.
Access to finance for smaller businesses also remains a challenge in Botswana as does skills training, with young people especially finding that their skills are not always fit for marketplace demands. A coordinated approach to financing entrepreneurship and enacting policies to broaden access to digital financial services, as well as streamlining education and training to meet current and future labor market demands could help close Botswana’s financing and skills gaps.
Finally, the CPSD recommends that Botswana removes certain barriers to competition, eliminates administrative red tape and strengthens the investment climate by introducing an investment policy, enacting an investment law and enhancing government effectiveness.
The CPSD’s main message is: Botswana should seize the moment to address longstanding issues and bottlenecks holding back urgently required private sector-led development—and capitalize on its many strengths to create jobs and opportunities. Doing so will help Botswana achieve its vision of green, diverse, and sustainable growth.
*Kevin Njiraini is the IFC Director for Southern Africa and Nigeria, while Marie Francoise Marie-Nelly is the World Bank Country Director for Botswana, Eswatini, Lesotho, Namibia and South Africa