The manufacturing industry: An integral cogwheel in Botswana’s future

Harold Matenge - David Mparutsa | Monday August 12, 2024 09:46

 

Coming up: The country’s manufacturing sector has been growing in fits and starts over the years PIC: PHATSIMO KAPENG

According to the World Bank, Botswana's manufacturing sector contributed approximately 5.6% to the country's GDP in 2023 and remains modest due to a limited domestic market and heavy reliance on imported supplies. The Botswana government has however implemented several initiatives to stimulate growth in manufacturing sector and enhance competitiveness.

The Industrialization policy coupled with the Economic Diversification Drive focus on diversifying the economy away from mining dependence and includes measures to support the manufacturing sector. There are various training and capacity building interventions such as the Technical and Vocational Education and Training (TVET) curriculum, which supports many an Industry including manufacturing.

Lessons learnt from countries with high manufacturing output such as China and India highlight the following key attributes are required to cultivate a successful manufacturing environment which Botswana and any other country with similar aspirations needs to consider.

• A stable and continuous energy supply is fundamental for manufacturing operations. Interruptions in energy availability can disrupt production processes, leading to costly delays, and damage of essential equipment. In Botswana, the energy sector is expected to be bolstered by the Independent Power Producers (IPPs), who have become an important part of the generation mix, providing additional power to the grid which then subsequently supports Industry.
• Proximity to or easy access to raw materials is important for minimizing supply chain disruptions and reducing transportation costs. Efficient logistics and well-developed infrastructure are crucial for the seamless movement of raw materials and finished products. Botswana being a land-linked country will need to invest in rail, road and warehousing infrastructure to enable efficient transportation of goods predominantly to and from ports within the region such as Mozambique, Namibia and South Africa. The recent signing of the landmark agreement for the development of the new Techobanine deep water port in Mozambique and the Limpopo Railway Line which will run across Zimbabwe and connect Botswana and Mozambique is certainly a step in the right direction.
• The quality of the workforce is pivotal to manufacturing success. A skilled labour force, equipped with the necessary technical expertise and knowledge, enhances productivity, ensures high-quality output, and drives innovation. Investment in education and vocational training is essential for developing a capable workforce that is skills ready and adaptable to the ever-changing technological advancements of today. Over and above this, it is also necessary to attract the right skills into the market and immigration policies need to support this.
• Embracing advanced technologies and fostering a culture of innovation are essential for maintaining a competitive edge in the manufacturing sector. Integrating innovative technologies, such as automation and digital tools, improves efficiency, enhances product quality, and drives technological advancement.

With an existing global dominance of manufactured goods from Asia, Europe and the America’s, careful consideration needs to be made about the sectors, markets and goods to target for manufacturing. The mining sector, which is currently the largest contributor to GDP in Botswana could act as catalyst for growth of manufacturing as it has a large value chain which requires a diversified range of manufactured goods ranging from chemicals and lubricants, protective clothing through to specialized equipment. With strong support already in place to support local buying in the sector, further investment into manufacturing capability makes sense. Mining is also the dominant economic driver in neighboring countries including South Africa, Zambia and Zimbabwe and through trade agreements such as Africa Continental Free Trade Agreement there could be an opportunity to develop a regional market to support specific products manufactured in Botswana for use in mining value chains.

Funding for manufacturing activity will need to be supported by various players across the ecosystem. Developmental Financial Institutions will play a big role in providing the capital required for start-up projects via debt, equity or grant funding. Banks will need to focus on understanding the manufacturers’ working capital cycle as well as offtake agreements to ensure financing is provided across the entire value chain. Governments can also play a role in attracting Foreign Direct Investments to bolster the manufacturing sector through political stability, policy certainty and incentives such as tax breaks.

Big picture thinking, investment in infrastructure, skills development, leveraging trade agreements will all be required to drive manufacturing in Botswana and across the continent at large. At face value, it may seem easier to continue to import goods from developed nations with proven track records of delivery of quality goods at affordable prices. The question is, what is the opportunity cost of continuing to do this?

Next areas of focus for manufacturing in Botswana

As the economy looks to tilt from heavy dependency on mining and government as the country’s biggest employer, the manufacturing industry stands a great opportunity to be the key driver of this economy going forward. Some of the most opportune spaces to invest into as a way of supporting this industry include.

Developing a value-added agricultural products environment, or simply put agro–processing space is a key area worth considering by the manufacturing industry. This involves processing raw agricultural products into finished goods, which can increase their market value and create new revenue streams. The recent vegetable importation ban by the government also supports the agro-processing industry due to the increased supply of produce that is also easily accessed by those in industry.

Adding value to the country’s rich mineral resources through processing and manufacturing can significantly boost the sector. The buzzword here has been mineral beneficiation which includes activities such as cutting and polishing diamonds and other minerals. The pharmaceutical industry is also one growth area to be considered in the manufacturing space. The local production of pharmaceuticals, including ARVs, has been identified as a significant growth area. This can help meet local demand and reduce import dependency.

At some point, Botswana had a thriving textiles and apparel industry that was supported by the Africa Growth & Opportunity Act (AGOA). This largesse that was extended by the United States government to Botswana and other African countries including Lesotho and Eswatini, went a long way in helping set up a thriving industry. This was however not fully optimised as the local industry collapsed due to importation of cheaper goods and a burgeoning Chinese market that positioned itself as the textiles and apparels hub of the world.

Now armed with deliberate localization policies like CEEP, Absa Bank Botswana is of the view that this industry can be resuscitated to play its part as a key employer through encouraging the manufacturing of textiles and garments like school uniforms, PPE wear for the mining industry, and other related items as local production is now supported due to import restrictions in place.

Strategies for local businesses to scale up and penetrate international markets

With the above achieved, there will also be a need for the local manufacturing industry to have a global view eventually. Certain strategies will need to be employed for local businesses to scale up and be able to penetrate the international markets. Enhancing product quality and standards is key to being competitive. Local businesses must ensure their products meet international standards. This can be achieved through certifications, quality assurance processes, and continuous improvement in manufacturing practices.

Adopting advanced manufacturing technologies and investing in research and development (R&D) can increase efficiency, reduce costs, and create innovative products that appeal to international markets. Utilizing Special Economic Zones (SEZs) like the Selibe-Phikwe Economic Diversification Unit (SPEDU) can provide businesses with incentives, better infrastructure, and simplified regulations, helping them scale up operations.

Businesses should actively seek opportunities in regional and global markets. This includes participating in international trade fairs, building networks with foreign buyers, and understanding the market demands of target countries. This speaks to export market development, a key component in aiding local manufacturers to be global players.

We believe that with these strategies in place, not only will the Botswana manufacturing industry grow and be a significant contributor to the GDP, but the industry will also open the country up to opportunities of FDI as other more established economies seek growth and partnerships will be looking at those countries that have well laid policies that support industry.

*Harold Matenge is Head of Ecosystem Banking at Absa Bank Botswana Limited while David Mparutsa is Head of Enterprise & Supplier Development at Absa Bank Regional Office