The trek towards an export-led economy

Mbongeni Mguni | Monday September 9, 2024 13:43

Evolving into a diversified export-led economy is top of the government’s transformational agenda, holding the promise of the sustainable, diversified and knowledge-driven growth required to reach the high income status dream.

It’s the path that led the Asian tigers from their agrarian foundations to becoming some of the titans of global industry, finance and innovation today.

For Botswana, experts in government and the private sector, as well as advisers in the development finance institutions, all agree that a diversified export-led economy driven by the private sector, is the next natural but critical path required in the local economy.

After decades of an economy anchored on diamond mining and led by government, the decline in resources of the shiny stones and weak diversification is constraining government’s ability to continue catalysing growth through budget spending.

“Because export-led growth provides access to relatively large global markets, it has potential to spur rapid and large-scale job creation, which is essential for the reduction of unemployment and poverty as well as securing inclusive growth,’ reads the second Transitional National Development Plan (TNDP), the broad economic blueprint elapsing in March 2025.

The Arab Bank for Economic Development in Africa (BADEA) says Botswana is on the right track, particularly in terms of getting the basics right.

In fact, BADEA’s inaugural Africa Export Competitiveness Report, launched recently, ranked Botswana second in terms of “administration” or key governance parameters that include the rule of law, control of corruption, government effectiveness and regulatory quality.

“Good governance is crucial for sustainable development, fostering economic growth, human capital development, and social cohesion,” BADEA researchers said.

“It promotes transparency, accountability, and progress in nations, ultimately contributing to global development and prosperity.

“The rigorous assessment of these governance parameters is essential.”

Botswana was also ranked amongst the top 10 countries assessed in the report for establishing a conducive atmosphere for exports, which researchers noted is imperative for countries seeking to promote their economies as export hubs. In a group of 30 that included giants such as Egypt, South Africa, Morocco, Nigeria and others, Botswana’s export policy strength was ranked eighth best in Africa.

“A well-designed export policy can play a key role in creating such an environment.

“It promotes exports and competitiveness, facilitates the elimination of trade barriers, and offers financial and marketing incentives,” BADEA researchers noted.

Botswana also scored well on an indicator measuring the potential workforce available for knowledge intensive sectors, based on high levels of education and training as well as other human development parameters.

Almost predictably, the areas where Botswana was marked down, are the same that have come up repeatedly in analyses by experts within and outside government. Botswana was ranked poorly in terms of basic infrastructure that enables exports, a category where most of sub-Saharan Africa performed badly with researchers noting “an alarming deficit in essential amenities, especially electricity and transport”.

Botswana was also ranked last in the list of 30 countries when BADEA researchers assessed an export competitiveness factor called “demand sophistication.”

“Demand sophistication assesses the income distribution and sophistication of countries by considering several key indicators.

“Firstly, it considers the share of the urban population, reflecting the level of urbanisation in each country.

“This is often related to higher incomes and rising demands for a broader range of products and services.

“Secondly, it evaluates the top 10% share of wealth – net personal wealth – which indicates concentration of wealth among the wealthiest 10% of a population, reflecting income inequality.”

Botswana continues to struggle with high income inequality, which BADEA researchers said impacts on the ability of the local economy to scale itself up to exports. Inequality can lead to a skewed distribution of purchasing power where a small minority has substantial financial resources, while the majority of the population may have limited economic capacity to engage in more sophisticated consumption, thereby impacting the overall market for advanced or specialised products.

While governments were not asked to respond to BADEA’s findings, local policymakers have frequently acknowledged that stiff challenges exist in transforming the economy into a diversified private sector-led export economy.

Both of these aspirations – private sector led, export-driven – are linked to the underperformance of manufacturing, the key non-mining sector whose optimal contribution could greatly ease unemployment, boost innovation and enhance growth in the style of the Asian tigers.

“The traditional route for export-led growth has been through manufacturing,” reads the TNDP.

“This partly reflects the fact that manufactured goods have traditionally been widely-traded internationally, and benefit from major economies of scale that encourage large-scale production for export.

“Manufacturing also provides an effective “productivity ladder”, whereby firms can gradually move into more efficient and higher value-added production on the basis of skills, experience, learning-by-doing, technology and increased investment.”

The challenge is the huge turning circle involved: transforming a relatively small, government-dependent private sector into a dynamic, robust economic actor that can lead the sustainable growth the country needs.

This week in Parliament, Finance minister, Peggy Serame, said the challenge was being confronted from a policy perspective such as through appropriate exchange rates, through projects such as supportive infrastructure as well as via programmes such as the Special Economic Zones.

Serame was responding to an enquiry by her predecessor, Lobatse MP, Thapelo Matsheka, who wanted to know the progress made in realising an export-led economy in the last five years.

Serame added that initiatives such as Temo and Thuo Letlotlo, as well as horticultural and crop imports were designed to enhance domestic production and trigger value chain activities, which include food processing.

She however acknowledged that the plans for exports were not coming together as quickly as policymakers had hoped.

“Despite these measures, government does acknowledge that export diversification has not occurred at a pace that (we) would have hoped for,” she said.

“For instance, exports are still dominated by diamonds.”

The minister also pointed out that the COVID-19 pandemic and the economy’s need to respond to it, had slowed down the export-led aspirations.

It does not help that the targets for a diversified private sector-led export economy are quite steep, according to numbers contained in the National Transformation Strategy (NTS)’ short-term plans for the years to 2030.

For instance, under the NTS, the diversified private sector-led economy will be said to have been achieved when non-diamond exports as a percentage of GDP reach 39%, compared to 12.1% in 2022. The target will be said to have been met when Harvard Atlas of Economic Complexity ranks Botswana in its top 50, compared to number 115 in 2020.

More interestingly, the NTS targets an annual real economic rate of six percent, which will be quite a feat given that growth in recent years has been swinging from one extreme to the other due to the pandemic and the rebound thereafter.

Despite the challenges, it is expected that the upcoming National Development Plan 12, which will succeed the TNDP, will again focus on a diversified private sector-led export economy, which represents one of the only viable, sustainable post-diamond trajectories for the country.