BIDPA study reveals hideous wage disparity
Brian Benza | Friday November 21, 2014 13:52
According to a study on export diversification conducting by Professor Roman Grynberg of BIDPA, the high salaries for skilled labour in the non-mining private sector have eaten into the rate of return for investing in Botswana thereby discouraging investments into the sector.
Because of the high-end colossal wages in the products and services, Grynberg says that Botswana has become uncompetitive for the export market throwing spanners in the economic diversification efforts.
“The study concludes that salaries for skilled labour for those in the recognised professions and management are one of the main sources of cost disadvantage in industry and explain much of Botswana’s cost disadvantage,” said Grynberg.
According to BIDPA, an international cost survey was commissioned from the Economist Intelligence Unit comparing costs of doing business in Botswana, Lesotho Mozambique, Mauritius Namibia, South Africa, Swaziland, Tanzania and Zambia and three Asian countries of China, India and Malaysia.
The survey results showed that Botswana’s cost strengths lie in low energy costs, commercial property rental and unskilled labour costs.
“Its greatest weaknesses are in cost of skilled labour, professionals and management, as well as transport costs and nominal interest rates on loans,” said Grynberg.
According to the results of the survey, the rate of return of investing in Botswna in comparison to the least cost producer, which was India in the sample survey, found that on average labour costs contributed to a 54 percent difference between the two countries’ net present value of investments.
On the other hand, unskilled labour costs in Botswana are lower than in Swaziland, Lesotho, Zimbabwe and India, accoriding to the survey conducted in 2012.
According to BIDPA, for Botswana to drive down labour costs, the country should consider opening the middle and top end of the labour market to international competition for professional and highly skilled workers and managers as this will have the effect of driving down costs.
“Dismantling the restrictive trade practices of professional associations in the recognised professions in Botswana is also vital.” added Grynberg.
Other barriers to diversification identified by BIDPA include lack of export tax incentives and high transport costs.
In that line, Grynberg has advised that government needs to reform its tax incentive system or it will not attract investment.
Also identified as a possible solution to cutting down transport costs is eliminating the barriers to increased competition in trucking and removing restrictions that raise the transport costs of getting containers to ports.
While the economy of Botswana is now reasonably diversified in term of output and Gross Domestic Product (GDP), minerals still precariously dominate exports at over 70 percent.
According to Dr Keith Jefferies, although the structure of the economy has shifted from mining to services, this will pose a balance of trade problem if diversification of exports continues to lag behind that of GDP.
Latest statistics show that the economy is now diversified in production terms with mining’s contribution to GDP having fallen to 26 percent from over 50 percent 20 years ago.
On the other hand, the services sector, which comprise of trade, finance and business services, transport and communication, has also significantly shored its contribution to GDP to about 45 percent from about 21 percent two decades ago.
According to Jefferies, government policy should now shift to facilitating diversification of exports, which are dominated by diamonds. Latest Statistics Botswana (SB) figures show that both polished and rough diamonds contribute 70 percent of exports, a trend Jefferies said leaves the country highly susceptible to balance of trade shocks.
“The economy is now more diversified than it is often recognised. The share of mining in GDP in now less than half of its peak so to that extent diversification has been successful,” said Jefferies at the launch of the Deloitte CFO 2014 survey result in Gaborone this week.
With the structure of the economy shifting from mining driven to services driven, the economist says that the prevailing trend where services dominate growth but not exports will result in long-term sustainability problems.
The latest statistics reflect that while the services sector contributes 45 percent to GDP, its contribution to export stands a mere seven percent.
“With mining continuously declining, the economy is also transitioning from an exporting sector to a non exporting sector. This will in the future result in balance of trade deficits. So I believe government should be focusing more on facilitating export diversification rather than import substitution,” he added.
While the trade, transport, financial and business sectors have grown significantly; the services sector has primarily targeted the domestic market resulting in the sectors low contribution to the exports.