The NDP 11 Mid-Term Review: A focus on economic transformation

Mphoeng Mphoeng | Friday August 14, 2020 12:24

This document’s primary purpose is to look holistically at the past three years of the Botswana economy, what we’ve achieved, challenges and adjust the trajectory of the NDP11 as necessary. In this article I therefore try to bring out some snapshots in the document and possibly offer some insight and advice into some of the issues at play. Due to the sheer breadth of the document, I will strictly stick to issues related to the economy and its potential transformation.

NDP 11 backdrop

This MTR comes at a critical juncture in the development of the Botswana economy. Over the past decade we saw Botswana’s diamond-led growth slowing down, largely due to lower diamond prices and depressed demand. This has led to a need for social and economic transformation as spoken of repeatedly by His Excellency Dr MEK Masisi. We also see this NDP as critical since it is the first of three NDPs covering Vision 2036 which also coincides with the world working towards 2030 Agenda for Sustainable Development. The NDP must therefore capture aspirations of both these initiatives as well as accommodate the National Transformation Strategy.

In the past we saw the government spending increasing in a bid to keep the economy afloat even though diamond revenue had stalled. This expenditure has proved necessary to transform the Botswana growth mode from a diamond led one to one driven by exports of goods and services. This also ties into aspirations of the government wanting to shift the economy from a mineral led one to a knowledge-based one.

A large theme of the NDP11 is about emphasizing implementation and effectiveness of policies and increasing value, we retrieve from spending so we can get more for less. The private sector is also challenged to do more in a bid to reduce the dependence of the economy on government spending. As if that weren’t a big enough challenge, COVID-19 pushed the whole world into recession and has made it necessary for government to come up with an Economic Recovery and Transformation Plan which would be implemented alongside the remainder of NDP 11.

Botswana’s macro-economic overview

When NDP11 was first drafted, it forecast growth of four percent over the period with expectations that the non-mining sector would grow faster than mining. This forecast came to pass but with mining performing worse than expected because of the closure of BCL. We saw Trade, Hotels and Restaurants, Transport and Communications and Social and Personal Services sectors driving growth.

The efforts at diversification seem to be bearing fruit as we saw mining’s contribution to value added GDP reduce to 18% compared to 21% of Trade, 16% on Finance and Business Services and Government accounting for 16%. Unfortunately diversification of GDP isn’t enough for sustainable growth especially as we see a challenge in diversifying exports (diamonds still account for 72% of Botswana exports).

Another worrying trend is that Botswana’s ability to withstand economic shocks has deteriorated over time with foreign reserves falling from P84.9 billion in 2015 to P71bn in 2018. This coupled with increasing budget deficits means the ability of government to continue to cushion the economy is deteriorating.

NDP 11’s key strategy was to front load spending and improve backlog of infrastructure projects and then reduce spending in the second half of the plan in order to balance the books. Revenues were expected to be steady during this period and deficits though expected, would have been reversed in the second half of the plan. What occurred though is that said development spending fell significantly (meaning backlog of projects remains) and recurrent spending largely on salaries, subventions to councils and parastatals, subsidies and grants has increased in the first half and will likely spill into the second half of the plan.

To make matters more complicated, COVID-19 has created uncertainty and driven world economies into recession. Growth in GDP has now been revised down with it expected to average 1.9 percent in the next three years compared with four percent that was projected and six percent needed to create employment. As a result ERTP will also force government to spend on projects meant to facilitate growth and we now expect a budget deficit of P56.7 billion over the remainder of NDP 11.

Financing of this deficit is unclear but points to increased government borrowing both in local bond markets and external debt from institutions such as the World Bank and African Development Bank. COVID-19 has therefore expedited the work needed to be done on economic transformation.

Economic Transformation

The MTR recognises that as it stands, below are some of the critical issues that need to be addressed for the Botswana economy:

Need for economic transformation from mineral lead to knowledge based economy
Maintaining Macro economic stability
Greater socio-economic inclusion in a bid to reduce unemployment and inequality
Improvement of Quality of public services
Addressing challenges posed by the changing world of diamonds
Climate change

In a bid to address the above, the below NDP 11 focuses on five policy focus areas as below:

Policy and Regulations:

Economic policy framework will be expected to remain unchanged, focusing on ensuring stability and predictability to support investment decisions by both public and private sector. This covers areas of monetary (interest rates) and exchange rate policy.
Fiscal policy (gov’t budgets, spending etc) will be more challenging given declining revenues and deteriorating government net financial position. This will need an evolution with regards to approach to spending, revenues and financing of deficits.
Micro economic policy includes prices, regulations, institutions, taxes and even subsidies. To some extent govt support has not yielded expected results hence it is necessary to reconsider many aspects of policy to promote labor intensive, export led growth whilst making markets more efficient and reducing cost of doing business

Promotion of export lead growth

Since domestic demand is too small to create economies of scale (though I beg to differ) it is imperative we build competitiveness so we are able to compete on the global market.

Ensuring more efficient government spending

Improving appraisal, design, costing and implementation of public sector investment projects in a bid to reduce waste and poor implementation.
Improving monitoring and evaluation of projects to increase success.
Improving overall procurement

Clamping down on corruption and waste

Building human capital

improving effectiveness of education spending
Improving education basics
Improving health and wellness

Provision of appropriate infrastructure

To attain our aspirations of entering the 4IR we would need basic infrastructure like electricity and digital connectivity
improving health and education facilities
Improving cross border transport infrastructure like rail and air cargo connectivity
Improving electricity generation and distribution
Provision of dependable high speed, low cost internet
Improved maintenance of existing infrastructure

The MTR goes on to to tackle various industries, their performance, challenges and policies going forward for the second half of the NDP11. Below I picked a few of these to profile, looking at their strategic importance:

Manufacturing

Though it experienced weak growth of about three percent in 2017/18, manufacturing accounts for 5.7 percent of value added GDP and manufactured items account for 7.8 percent of all exports. The sector also employs 38,000 people which is around 18% of formal employment outside of government. The sector is driven by the 2014 Industrial Development Policy with six major focuses being industry creation, industry promotion and facilitation, industrialisation and citizen economic empowerment, development and infrastructure, industry relevant skills, private sector capacity development. These are supported by BITC and SEZA. Other relevant strategies to the sector include the Economic Diversification Drive (EDD) and the National Export Strategy.

The sector is dogged by challenges such as lack of competitiveness, difficulty in accessing markets, inadequate capacity to meet demand of major markets, protectionist measures in neighbouring countries, difficulties in accessing value chains, insufficient flow of FDI and poor data on sector. The policy reforms to address these will hinge on the review of Industrial Development Policy of 2014.

The MTR sees opportunities in downstream manufacturing using locally available raw materials, food can manufacturing, tableware and sanitary ware manufacturing, components assembly of items such as phones, packaging/bulk breaking of perishable items especially those imported from neighbouring countries. These opportunities will hopefully be realised through establishment of SEZs in Gabs (airport), Lobatse (Leather industry park) Selebi-Phikwe and basket weaving cooperative in Ngamiland.

Mining

The Botswana GeoScience Institute was established in 2017 to strengthen capacity in research and innovation. This will increase the data and strategy around development of other mining ventures in the country. The government has also developed a Diamond Beneficiation Strategy in 2018/9 with the aim of easing doing business and entry by Batswana into the sector.

Ease of Doing Business Reforms

Since start of NDP 11, Botswana’s performance on the Doing Business and Global Competitiveness reports has declined from 81 in 2017 to 87 in 2018 and 91 in 2019. That said, some successes include amendment of new legislation and admin reforms aimed at improving regulatory framework, passing of new Trade and Industrial Development Acts, replacing licensing requirements and simpler registration processes as well as the Online Business Registration System.

The proposed focus areas for the second half of NDP11 will include development of ICT infrastructure, effective e-services, broadband connectivity and implementation of eGov and enhancement of national ID systems, development of National Productivity strategy to address competitiveness, restrictive labour laws, promote productivity, reviewing of current Doing Business Reforms Roadmap, implementation of Better Regulation Strategy, development of eVisa portal, strengthening investment in statistical data production to improve evidence based decision making and reviewing the Investment Attraction Strategy for Botswana.

Information and Communication Technology (ICT)

On the ICT front, the focus in NDP 11 is to deliver connected communities that will foster attainment of the knowledge society espoused in the National ICT Policy of 2007. Maitlamo has seven pillars of connecting Botswana, connecting communities, provision of enabling policies, delivering government services online, facilitating the use of ICT in schools for lifelong learning and enabling efficiency, transparency and competitiveness through the use of ICT in business transactions. Unfortunately, the International Telecommunications Union Measuring Information Society Report saw Botswana’s ICT Development index position fall from 102 in 2016 to 105 in 2017.

The policy reforms envisaged for the remaining years of NDP 11 include reviewing existing policy, legal and regulatory frameworks to remove potential hurdles for adoption of these technologies, aggressively developing relevant digital services including Government Online, Smart Agric and e-commerce, developing capacity around digital skills develop policies around 4IR and cyber security, reviewing Maitlamo 2007 to reflect current trends, promoting innovation, gauging the feasibility of establishing a technology park located at Orapa house, creating a digital transformation roadmap, establishing a digital economy council, remodelling the Department of Information Technology in government to make it more effective and properly resourcing the government online project.

Final thoughts on the MTR

While it is important to diversify the economy away from mining, it is also crucial to consider where we diversify to. In the May 2020 Stats Botswana Jobs Survey showed that on average mining jobs had the highest average salaries of P17,765 per month, followed by ICT at P11,394, Real Estate at P10,023, scientific and technical jobs at P9,371 and Finance on P8,820. Unfortunately our economy is diversifying towards Trade, Hotel and restaurants with an average of P1,935, agriculture with P1,807 and manufacturing on P3,210. We are therefore not replacing jobs like for like as one job in mining is equivalent to nine jobs in agric or trade and hotels.

Therefore, we should be focusing on diversifying away from diamonds but taking advantage of other competitive advantages we have in minerals like coal and copper and nickel. The introduction of the GeoScience Institute is a welcome development as it should increase our activity in the exploration space for more mining projects.

Related to the above, we have very little competitive advantage in manufacturing. We will never be competitive globally as long as we import most of our raw materials and still need to connect via South Africa to export our products.

Therefore, our obsession with export-led growth may be misguided. What we should be focusing on is “closing” our small economy and focusing rather on developing companies for import substitution and rather supplying the small local market even if at globally uncompetitive prices. This will be offset by the job creation and economic activity as a result. Once we have established our local manufacturers, then we can focus and transition to trying to compete globally.

On the other hand, we should be focusing rather on provision and services that have a more level playing field like ICT. The hurdles we see in manufacturing do not exist there and the main driver is skills development and a conducive incubation environment. We have also established that these jobs earn four times those of manufacturing.

The ICT plans and policies are sufficient for our transformation but once again we are let down by implementation. The policies and reforms being talked about all come from a document published in 2007 meaning we have been neglecting them for over a decade.

Reading through the Mid Term Review you realise that Botswana has too many policies, strategies and plans which conflict and overlap. It is important for us to carry out a rationalisation exercise to make it easier and clearer for these to be consumed and implemented. All in all, the MTR is a sobering document showing all the challenges Botswana faces, but thankfully we know all the answers. The question now is, do we have the will or capacity to do what is necessary?

*Mphoeng Mphoeng is currently employed at University of Botswana as a lecturer in the Department of Accounting and Finance at the Business Faculty. He holds an MSc in Finance from Manchester Business. He also works with the pioneering local data science company called Spectrum Analytics, where he is involved in steering Botswana into the 4th Industrial Revolution. His career started in 2006 at the Bank of Botswana where he held numerous roles in the Financial

Markets Department between 2006 and 2009