World Bank warns Botswana...
Brian Benza | Friday July 10, 2015 18:04
In a Systematic Country Diagnostic (SCD) report released recently, the World Bank says while the reduction in reliance on diamonds, as the anchor to economic output is welcome, growth that is largely dependent on consumer spending is not maintainable in the medium to long term.
“Weak capacity by the private sector to create jobs, low wage growth, and increasing household debt pose the highest risk to Botswana’s new growth and diversification trajectory, which is driven by the services sectors such as retail and vehicle trade,” reads the report, whose objective is to address the factors hampering inclusive growth in Botswana.
According to figures released by Statistics Botswana last week, Real Gross Domestic Product (GDP) increased by 4.3 percent in the first quarter of 2015 with the highest growth recorded in hotels and restaurants, vehicle dealers and retailers, which rose 8.9, 8.5 and 7.7 percent respectively.
The services sector began to play a more important role in the pre-crisis years, and accelerated through the crisis, with mining’s contribution to GDP falling from one-third to one-quarter following the crisis.
According to the report, while Debswana’s production cut from the 2007 highs of 34 million carats to between 21 and 23 million, it has trimmed mining’s contribution, the non-mining private sector has grown significantly with real growth in services. “While all parts of the services sector are growing, in the post-crisis years growth has been particularly strong in consumption-oriented segments, in particular retail and vehicle trade.
“Data on GDP composition by expenditure also gives an indication of how important consumer spending has become for Botswana’s economy,” reads the report.
Botswana’s weak capacity to create jobs has been identified as the key potential risk to the new pattern of consumption-led growth with the private sector estimated to have only been able to employ one of the six entrants into the labour market in the past decade.
The formal private sector created on average just over 3,000 jobs per year over the period of 2003 to 2010, far below the level needed to absorb the 15,000 to 20,000 annual new entrants to the labour market
On the one hand, while employment grew strongly and unemployment fell between 2003 and 2010, more than half of all new jobs came in small-scale or subsistence agriculture where the poor are concentrated and heavily supported through government programmes like ISPAAD.
Moreover, the World Bank says evidence from similar previous programmes suggests that employment levels may fall back sharply if subsidies were to be discontinued or scaled back.
Adding to the risks to consumption driven growth is the increasing indebtedness among households, as growth in wages, particularly among public sector workers, which is the core consuming class, has been far below the rate of consumption.
Between 2004 and 2013, bank lending to households grew by more than 20 percent annually, which was almost double the level of a decade ago. A recent analysis of take-home pay in the public sector shows that average loan repayments (including for mortgages) rose from 14.5 percent of gross salary in 2004 to 21.5 percent in 2014.