Tuesday, September 22, 2020

An overview of the Botswana Economy under F.G. Mogae’s Presidency

A lot has been said regarding the legacy of President Mogae as he retires from office in about 8 weeks. Much of what has been said is with regard to the contributions the President has made to the development of the country. It is a fact that President Mogae has played a leading role in all aspects of our economy for almost 40 years. President Mogae has worked as a Planning Officer, Governor of the Bank of Botswana, PSP, Vice President and President of the Republic. Given the above, there is no doubt that the President has helped build this country’s economy to what it is.
We should recall that when Botswana achieved Independence in 1966 it had 12 kilometers of paved road, 22 Batswana who had graduated from University and 100 from secondary school. Since then Botswana has achieved one of the highest growth rates in the world, averaging 8 percent between 1965 and 2004 ÔÇô almost four times the African average. Botswana is now classified as an upper middle-income country with approximately 7000 kilometers of tarred roads, a GDP per capita in 2004 of approximately US$3000, almost universal free education, 68 percent adult literacy, four doctors per thousand population, and infant mortality of approximately 58 per 1000 live births. Botswana was awarded the highest sovereign credit rating in Africa by both Moody’s and Standard and Poor’s in 2004. A combination of effective institutions, political stability and sound economic policies allowed Botswana to successfully harvest natural resource abundance in diamonds. Botswana has become the second largest diamond volume producer in the world after Australia, and the largest producer in terms of output value. President Mogae played a leading role in all these.
In fact, it is for the very reason that the President, as one of the architects of the existing Economic development strategies of the Country, was naturally not going to bring anything drastically different from His predecessor in terms of economic strategies, when he took over 10 years ago. Yes there have been achievements in the areas of a campaign for “Diamonds for Development”; mineral beneficiation and the concerted efforts to fight the AIDS pandemic in the country. But major economic challenges which were there when Mr. Mogae took office 10 years ago are still strongly in existence; and in all fairness to the President, his strategies for addressing such challenges were already in existence when he took the oath of office, and there was no way he was going to change them.

In fact, the President clearly articulated this when he said in his last state of the nation address “… I have not allowed political expediency and the pursuit of populism to cloud my judgement and service to the nation.” I agree with Mr Mogae that prudent management of our limited resources is of paramount importance and that populism at the expense of national sustainable development will be disastrous. However, I believe that Mr. Mogae has run his race the best way he could, and it is time the next President is allowed the space to chat his own strategies to address the many problems that Botswana, as a developing country faces. It will be unfortunate to give the impression that the Mogae model of doing things in Botswana was the best thing to ever happen to us and that the incoming President should stick to it lest he is accused of “political expediency and in pursuit of populism”. Yes General Khama, I believe, will definitely be guided by the sound macroeconomic policies that have set us apart for years. However, the way he will go about driving this Country and our economy does not at all have to be along Mr. Mogae’s past strategies.

This economy needs a paradigm shift from the past strategies. I think for the first time in 40 years, Botswana will have someone outside the Ministry of Finance in the Presidency, and this may be an opportune time to employ a different strategy to addressing economic challenges of the country. In fact, by setting up the Business and Economic Advisory Council (BEAC), whose mandate was to identify bottlenecks in the economy and establish a new framework of growing our economy, General Khama has set the tone for introducing new ways of thinking and a new approach to addressing challenges in the economy. The principle behind BEAC was to get as many experts in our economy as possible to consult and chart strategies for the economy. For me, BEAC should be re-organised as a permanent structure and replace the High-Level Consultative Council, which has really served its purpose.

General Khama is well aware that he will be faced with many economic challenges as he takes over in 8 weeks. A lot of people are asking what General Khama’s economic agenda is. I strongly believe that after almost 40 years of the Washington Consensus way of doing things in Botswana (with its successes and failures), we are likely to witness a new and different direction with General Khama; and I think the direction is likely to see a lot of challenges which have been overlooked for years tackled head on. As stated before, we have achieved a lot as a country, in fact, better than almost all countries in Sub-Saharan Africa; but that does NOT mean we cannot improve on the achievements of the past. For me, I think the challenge that General Khama faces is to ensure that we do better by coming up with new strategies of addressing the following:

Poverty Alleviation and Youth Unemployment

Even though Poverty has declined considerably, around 23 percent of the population still lives below the poverty datum line and inequality levels are comparable to Colombia and Brazil. Besides poverty, unemployment, especially among the youth, is very high. About 20 percent of the country’s labour force is unemployed with the youth (under 25 years) accounting for the majority (I believe Rre Botsalo Ntuane, through his motion in parliament, will deal with this matter better). Limited sustainable income and employment opportunities in both the formal and informal sectors contribute to high levels of poverty and unemployment. Most of the poor households live in rural areas with a significant number of female-headed families. And although government has over the years developed social safety nets to fight poverty, the challenge is to address the problems of poverty by developing long-term strategies through the creation of sustainable job opportunities, especially in the rural areas. The development of the rural economy is at the key of fighting poverty and creating sustainable job opportunities in Botswana. Development of infrastructure in the rural areas is critical to encourage investors to operate in these areas.

I will have problems with those who will insinuate that addressing problems of poverty in Botswana, through a different approach to the current one, will be political populism. The social welfare benefits should be reviewed; this will not be “political expediency and pursuit of populism” but the acknowledgement that the improvement in welfare of the nation is a major contributory factor to sustained economic growth and productivity. This will clearly be the re-introduction of the Scandinavian Model of Economic development which Botswana adopted after independence.
What is probably political expediency is coming up with programs such as the Young Farmers Fund, which everybody knows can never succeed, under any circumstance. The youth need sound programs to deal with challenges of today not feudalism. Such programs should involved major stakeholders such as the private sector. In the 2007 Budget Speech, the Minister of Finance talked about the amendment of the Income Tax (Training Regulations) which entails: (a) allowing businesses that offer unemployed youth any form of training to benefit from the tax reduction provisions; (b) making training expenses for part-time employees eligible for 200% deduction. The question is that how many companies have utilised this provision. I doubt if majority of our companies have even bothered to establish what this whole amendment is all about.

The other major challenge that the economy faces is that of capacity constraints and implementation problems. The Government recognizes the constraints in the form of skills shortage and the strain in infrastructural capacity, which may end up bursting in the seams. The major reason for failure to implement Government projects also has to do with our National development planning processes. The 5-year NDPs are just too long- as MP Guma Moyo once argued- and this creates implementation problems.
Diversification

Diversifying the economy beyond Botswana’s principal export ÔÇô diamonds ÔÇô is proving to be difficult. Diamonds account for approximately 83 of total merchandise exports, 35 percent of GDP and about one half of government revenues. This, in fact has been one of the major challenges that President Mogae had to deal with both as a technocrat and head of government. The question that General Khama as the incoming President should ask is why our diversification strategies are failing.

As stated in the past, the government of Botswana has come up with initiatives to try and drive economic diversification strategies; and these initiatives, have resulted among others, in the creation of institutions such as BDC, BEDIA, CEDA, IFSC, Public Procurement and Asset Disposal Board (PPADB) and Public Enterprises Evaluation and Privatisation Agency (PEEPA). I have argued before that, in my observation the main reason why some of the institutions are not performing according to expectations is two-fold: firstly some of the institutions are a duplication of the other and secondly there is not much attempt to establish linkages between different institutions. However it is encouraging to note that the BEAC alludes to this point of view; and steps have since been taken to merge some of these institutions. Secondly, in some cases the mandate of the organisation seems outdated and in need of revision. According to the 2007 IMF country report on Botswana, fiscal revenues are expected to shrink by about two-thirds from 2021 to 2029 as a result of the depletion of diamond resources. With such challenges, we need state-enterprises which can provide an alternative source of revenues. BDC should really step up in this regard!

What we need is a Ministry that will deal solely with management of state-owned Enterprises and implementation of diversification strategies. Thus the Khama Presidency might be an opportune moment for Government to consider splitting the Ministry of Finance and Dev. Planning into two, so that we have a stand-alone development planning ministry which will deal with Public Enterprises, Public Works and Implementation Capacity.
Implementation of Competition Policy and Strengthening the relationship between Business and Government

Corporations strive for profits, and one of the ways of garnering sustainable profits is to restrict competition- buying up competitors, squashing competitors by driving them out of business, or colluding with competitors to raise prices. With the privatization process, the anti-trust (unfair trade) manner of mainly South African companies doing business in Botswana, and the fact that domestically, the economy is but controlled by a few large suppliers, Competition Law is a must. Economic diversification, development of entrepreneurship and support for SMMEs will remain but a pipe dream in Botswana without a strong competition policy supported by Law to ensure fair trade in Botswana. An effective enforcement of competition policy requires criminal sanctions and the Government should seriously look into this. I have on many occasions indicated that there is no way CEDA can work to support SMMEs when the same SMME have to contend with unfair trade practices of large companies.
The role of organised business, at least as it has developed in Botswana, should be to provide a forum for business people to identify and discuss problems of common concern and to represent the business community in its relationship with government at various levels. The traditional mandate granted to business organisations such as BOCCIM should be to address issues impacting on the economy of the Botswana, region, area or sector and on the ability of its members to conduct business. We do not see much of this in Botswana.
The major problem in Botswana is the limited role that the private sector plays in economic development and promotion of diversification strategies. This failure on the part of business to play a leading role in shaping the direction of the economy of Botswana is likely to have adverse effect on business in the long run. One of the biggest challenges that face Botswana business is the potential implications of international trade on business.

There is a need to develop strong linkages between the SMMEs and big business in Botswana. The current situation where SMMEs do not get much support from big business is not good for economic diversification in this economy. Clearly a large number of private companies are not playing any meaningful role in the drive to develop and diversify our economy. The reason is simply that Government, which is the biggest investor in the economy (where the private sector is the largest beneficiary), does not have mechanisms in place to ensure that its investment accrues to companies that add value to the economy and contribute do skills development and job creation.

I have stated before that the failure on the part of Government, through PPADB, to have well defined and far reaching Codes of Good Practice by Companies is a problem. Such codes will ensure that big business support SMMES in Botswana and contribute to citizen empowerment and economic growth. These codes will evaluate and monitor initiatives, transactions and other implementation mechanisms of big business in Botswana. The CODES should be developed in such a way that such initiatives must be measurable in order to achieve the objectives of citizen empowerment and economic growth. Measurements will facilitate target setting and will also allow government to give ratings to each enterprise based on the role of big business in enhancing citizen empowerment, support to SMME, Skills development etc. This will allow Government to do business ONLY with big businesses whose practices are in line with developmental objectives of this nation. In this case Government procurement will be used to significantly contribute to economic growth and job creation for the youth in Botswana by ensuring that linkages between different sectors of the economy are promoted.

Citizen Empowerment and Privatization
Citizen empowerment is another area where President Mogae has not made much success. It is a fact that Citizen Empowerment should be an integrated and coherent socio-economic process that directly contributes to the economic transformation of Botswana and brings about significant increases in the number of citizens that manage, own and control the country’s economy, as well as significant decreases in income inequalities. This has not been achieved under President Mogae and currently majority of Batswana feel left out of the economic miracles of this country. Contrary to what some people believe, Citizen Economic Empowerment is NOT the same as re-distribution of resources. There have been arguments to the effect that what Botswana should strive for is economic growth before economic empowerment. That’s simply wrong.

Citizen economic empowerment should be an integral part of sustained economic growth; and one of doing this should be through ensuring that citizens participate in the privatization process. For the privatization programme to be sustainable and beneficial to Batswana, government should come with a scheme that will ensure that Batswana participate and benefit from the privatisation process. Government should consider establishing an Investment Fund, to allow Batswana to buy into state assets up for privatisation. Not only will such a strategy ensure economic empowerment, but it will also contribute to economic diversification and growth and guide against the creation of the Russian type of privatization which led to the creation of the ‘Russian oligarchs’. Russia provides a dramatic case of privatization gone amok. Here the oligarchs got the country’s vast natural resources for pittance. And what did they do with all the trillion dollars they got from such deals? They invested in the Premiership League in England. A clear act of capital flight sanctioned by government!

Welcome President Khama

I must confess that I just cannot wait for this Man to take over come 01/04/2008. Helicopters or no helicopters, bullet-proof BMWs or not, I am excited about Khama’s impending presidency. I am yearning for the Head of State who can take time from his tight schedule to travel the country visiting Batswana at every corner of the country; a President who will hold regular Kgotla meetings, to give Batswana a sense of belonging. The Kgotla is our traditional consultative forum; in South Africa they call it the Imbizo which the President regularly undertakes; in the USA they call it the Townhall meeting which the President regularly undertakes. It is not populism but a way of life for our people.
I am looking forward to a period where people who reach retirement age can retire. Can you imagine that this is probably the only country in the world, where only the head of state is forced to retire, everybody else hoops between the Government and parastatals? The other day President Mogae talked about fields/arable farms which are unutilised across the country. The question is how can we expect these farms to be utilised and the rural economy in general to improve, when we have inculcated a culture of entitlement where people expect to be perpetually taken care of by Government whether in the form of hanging around government offices or turning parastatals into old-age homes.

I am looking forward to a period where appointments into parastatal boards is inclusive of the pool of skills and expertise we have in this country. This situation of turning parastatal boards into an “old-boy’s club” is very regressive and is a contributory factor to the failure to diversify this economy. Rre Blackie Marole expressed these sentiments the other day.

Finally I really don’t need to be told how lazy I am by the mere fact that I am a Motswana. I need a President who can make me feel good about being a Motswana, with all my short comings. I want the President to make our youth feel good about themselves, inspire them and make them look up to him as a father; and not make them feel worthless by telling them how useless their fields of study are, when his very Government is the one funding such programs.

I want a President who is not a fountain of all knowledge. This country was built on a sound consultative process, where NOT one single individual should take it upon themselves to be the provider of answers to everything, hence “mmualebe…!” I look forward, positively to the Khama Presidency.

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The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.