As Botswana’s decades of robust growth and huge budget surpluses are being put to test by global financial crisis which dampened demand for diamonds, leading lending institutions on the continent propose that the private sector should be more visible in economic diversification.
In the 2009-2013 Botswana Country Strategy Paper, the African Development Bank (AfDB) observed that an expected decline in diamond production will again reduce Botswana’s growth rate and opportunities for employment in 2009 and beyond.
“In response to these challenges and within the context of NDP-10, the Bank group is proposing a Country Strategy focusing on two pillars,” stated the bank.
AfDB said the first pillar seeks to promote the role of the private sector and small and medium scale enterprises (SMEs) in raising productive capacity, increasing income levels, diversifying the economy and broadening the benefits of growth.
On the other hand, the second pillar aims at alleviating constraints on business activity and disincentives to investment by removing infrastructure constraints in energy, transport and water, thus enhancing competitiveness.
The bank argues that there is high potential for economic diversification since previous efforts to diversify have been slow and largely unsuccessful.
“The current scenario, with diamond exports plummeting, gives a glimpse of the future when Botswana will run out of diamonds,” it says.
NDP 10 has identified tourism, international financial services, energy – including regional power exports – agriculture and manufacturing as the main potential sectors for diversification.
The Botswana government has been singing the diversification song since 1990s without results, but pundits say the collapse in diamond demand has taught the country a lesson.
AfDB says avenues for diversification are dependent on minerals like copper, nickel, coal, clay, crushed stones, soda ash, salt and small quantities of gold.
Equally, the proposed strategy recognises the need to support the government’s short-term financing gap as it seeks to mitigate the impact of the global financial crisis and maintain its investment programme, while laying a firm foundation for a more competitive and diversified economy in the medium and long term.
Already, the bank has extended US$1.5 billion Budget Support Loan as the country moves into the biggest fiscal deficit of P13.4 billion.
Botswana is not only experiencing challenges in the global economic recession, but it has others like infrastructure bottlenecks, human capacity and skills for a diversified and productive economy even though the country has a good track record in prudent economic development and management.
AfDB says in order to mitigate these challenges it has offered support action to support the private sector by promoting the role of SMEs in raising Botswana’s productive capacity, increasing income levels, diversifying economic activity across various sectors of the economy, and, ultimately, broadening the benefits of economic growth.
“A robust and responsive private sector is critical to the success of Government of Botswana’s competitiveness and diversification efforts,” states the paper.
It adds that the Bank will also influence policy reforms that focus on financial sector deepening, strengthening the regulation of non-bank financial institutions (NBFIs), and promoting privatisation and private-public partnerships (PPPs).
The bank is also proposing the long talked about removal of bottlenecks in order to enhance competitiveness and growth. The pillar aims at alleviating constraints to business activity, disincentives to investment and, thereby, enhances competitiveness and growth.
“The Bank will finance operations in transport infrastructure that contribute toward the government’s public sector transport programme,” it stated.
This will include the rehabilitation and construction of roads, railways, bridges and airports while also helping Botswana solve its energy crisis achieve energy security and build electricity infrastructure in support of the government’s diversification programme.