Botswana faces �middle income trap�
Brian Benza | Friday January 16, 2015 13:05
From high growth rates averaging over eight percent in the past decades that were responsible for the country’s quick rise from a least developed country to an upper middle-income economy, economic growth measured by real GDP has stabilised at around four percent in recent years.
According to the IMF researchers Lamin Leigh and Marshall Mills, many middle income countries (MICs) including Botswana, have experienced a slowdown in trend growth in the last decade with recent research showing that most of the growth moderation can be explained largely by slowdowns in productivity growth.
Botswana’s economic growth, which hovered around an average 8.7 percent in the period 1996-2001, slowed down to 4.4 percent during 2002-2006 before further easing to an average 3.9 percent during 2007-2013.
At a ‘middle income trap’ seminar held recently in Mauritius, Botswana committed to finding new engines of growth to thrust the country into a high income status, while at the same time vigorously pursuing policies to diversify the economy.
Botswana Gross National Income(GNI) per capita currently stands at around $7,700.
A high-income economy is defined by the World Bank as a country with a GNI per capita above US$12,746. Eighteen senior officials from seven middle-income countries in Africa, including Botswana came together where they set themselves the challenge of reaching high-income status and avoiding the middle-income trap.
According to the pundits, returning to an era of strong growth and accelerating Botswana’s convergence to higher income levels would require policies to reinvigorate productivity growth.
These include improving the quality of public spending, notably in public investment projects and education to ensure the transformation of diamond wealth into sustainable assets.
“While still positive, growth has slowed, as previous growth drivers weaken and the rise in per capita income wanes.
“The concept of a middle income trap grew from the observation that middle-income countries graduated to high-income status far less often than low-income countries became middle-income countries.
From 1960–2012, fewer than 20 percent of middle-income countries—and none from sub-Saharan Africa—became high-income states, compared with more than half of low-income countries graduating to middle-income status,” says Leigh and Mills.
The seven small middle-income countries facing this trap in sub-Saharan Africa are Botswana, Cape Verde, Lesotho, Mauritius, Namibia, Seychelles, and Swaziland.
The seminar examined common policy challenges these countries face, reviewed what individual countries have done to address them, and how IMF surveillance can build on successful approaches to help countries move forward.
It was noted, at the seminar, that while sub-Saharan Africa remains the second fastest–growing region in the world, the small middle-income countries are among the slowest growing in the region, and there are significant downside risks to this outlook. The Botswana economy grew by 5.9 percent in 2013 and is forecast to have expanded by 5.2 percent in 2014 before it further rises five percent in 2015.
“Returning to an era of strong growth is necessary to achieve high-income status,” reckons the IMF researchers.
But the question for Botswana in particular is, where is future growth going to come from? Secretary for economic and financial policy in the Ministry of Finance Taufila Nyamadzabo believes improving productivity is a new engine of growth for Botswana. According to the 2015/16-Budget Strategy Paper, one of the main economic challenges facing Botswana is the declining trend in total factor productivity, which affects the competitiveness of domestic industries.
Of significance is that a declining productivity lowers the standards of living by reducing the ability of the economy to compete effectively in international markets.
“Hence, government will continue to put measures to improve factor productivity, in particular, labour productivity in order for the economy to obtain its full potential output.
“Among the areas that require urgent attention to be streamlined are labour relations such as work ethics, hiring, and firing procedures, as well as employer-employee relationship,” read the paper.
Growth in labour productivity, as measured by value added per person employed, has been declining over the past two decades in the country from a negative of 1.45 in 1991 to a minus 1.64 in 2011.