�eating diamonds� will no longer anchor growth
Brian Benza | Wednesday September 28, 2016 15:51
Government has set itself admirable targets of not only graduating to a higher income country status, but has also pledged to weed out the problems of unemployment, poverty, inequality, dependence on government and low household incomes.
Latest available statistics from the World Bank show that Botswana is one of the most unequal countries with an estimated Gini coefficient of per capita consumption OF 0.49 in 2009/10. According to Statistics Botswana (SB), the proportion of the population living below the poverty datum line (PDL) stood at 19.3% in 2009/10.
On the other hand, the unemployment rate is also very high at 17.8% (2009/10), although according to the International Monetary Fund (IMF) the number can be as high as 30% if discouraged workers were taken into account.
On top of these socio-economic challenges, exports are still precariously 80% dominated by diamonds, a resource that is now expected to deplete by around 2050.
On the macroeconomic side, Botswana faces a ‘middle income trap’ as growth rates, which hovered around an average 8.7% in the period 1996-2001, slowed down to 4.4% during 2002-2006 before further easing to an average of 3.9% during 2007-2013.
To reverse such deteriorating economic indicators, economic pundits are agreed that it requires a fundamental change, so that productivity, efficiency and competitiveness become the new engines of growth.
According to the IMF, for Botswana to return to the era of strong growth and accelerating the country’s convergence to higher income levels would require policies to reinvigorate Total Factor Productivity (TFP) 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.
Growth in labour productivity, as measured by value added per person employed, has been declining over the past two decades in Botswana from a negative of 1.45 in 1991 to a minus 1.64 in 2011.
Economist, Keith Jefferis says the hard truth is that Botswana did not, in general, reach upper middle-income status by being productive, competitive or efficient – although there are some pockets of economic activity that demonstrate all of those things.
“We reached it by consuming, and investing wisely, the proceeds of the natural resources under our soil.
“Looking ahead to the next 50 years, what is in store? There is no immediate threat to Botswana’s current “business model” – unless of course synthetic diamonds destroy the market – as diamond mining and exports should continue at something like current levels for the next couple of decades.
However, it would be a mistake to assume that “business as usual” is viable approach to the future growth of the Botswana economy, for several reasons,” he says.
A second transformation in the next five decades will need to be demonstrated in a diversification of exports, as Botswana firms produce goods and services that the rest of the world wishes to buy, and a much more prominent role for the private sector in creating jobs and driving growth.
According to Jefferis, a successful “second transformation” means that in 50 years the economy, and indeed society more broadly, will look quite different to that of today.
The country will need to be deeply integrated into global and regional markets for goods, services, capital and labour.
There will also be a need for extensive foreign direct investment (FDI) into Botswana, and local firms will need to be active investors around the region and around the world. In this best-case scenario, migration will have to be a two-way street.