Tuesday, October 27, 2020

BDC loan should save us from “diworsification”

The government investment arm, the Botswana Development Corporation (BDC) is expected to receive atleast P850 million from the continental development bank, African Development Bank (AFDB). This money, we have been told will be used by BDC to invest in key sectors with a view to ultimately help diversify our country’s economic base.

In line with the government’s ambitions, the AFDB loan, we have been told, will support entrepreneurship, economic diversification and avail scarce long-term funding to critical sectors in our country as well as enable jobs and wealth creation.

In theory this sound likes good news. Practically, given our history of “doing business” this might be bad news. This is so primarily because diversification has always been the catchphrase backdrop in all government budget speeches since forever. In practice however we seem to be much closer to “diworsification” rather than “diversification”.

Initially described in Peter Lynch’s book, “One up on Wall Street” (1989), as a company specific problem, the term “diworsification” has morphed into a buzzword used to describe inefficient diversification as it relates to an entire investment portfolio. In our view, the term is best suited to describe our economy at the moment if we were a company.

Given recent closure of companies, particularly in the diamond sorting and polishing industry, our fear is that apart from diworsification, Botswana might be undergoing de-industrialisation instead of industrialising. Of late we have seen a few industries being set up but companies such as Cadbury have since closed shop. Kgalagadi Breweries Limited (KBL) has since closed down some of its operations while the cash troubled BMC recently down sized at one of its abattoirs.

Our fears of diworsification have actually already been confirmed by an international rating agency, Moody International, which noted late last year that Botswana’s efforts to diversify are ‘elusive’.

Notwithstanding implementation of a succession of policies for economic diversification over the years, the domestic economy REMAINS heavily dependent on the mining sector, particularly diamond mining.

Government documentation however shows that thus far, diversification has focused on export-oriented manufacture of textiles, leather, glass, and jewellery. Some of the projects such as the Palapye glass project (initially owned by the BDC) have since collapsed while the much anticipated Leather Park in Lobatse is yet to come to fruition. The projects were expected to create massive job opportunities for thousands of youth who are currently roaming the streets.

The sad reality is that if we do not change economic tactics, the 11 percent level of manufacturing employment which we attained in 1998 could be the highest that we will ever achieve. To this date, Botswana’s growth and overall macroeconomic outlook remain critically dependent on value addition in the diamond sector. This is the same sector that has however shown us that it is to be relied on.

We all got to agree to disagree that as it stands, it is not clear the extent to which our country is diversifying and performing. This in our view is because deliberations on diversification tend to be at a more aggregated level. Elsewhere, several countries have placed economic diversification efforts on promoting industrialisation. An economical tactic that is premised on the belief that industrialisation provides greater potential for long term growth.

While we ponder on the issue, one ought to also state that in order to have a deeper understanding of whether diversification strategies are paying off, there is need to have ‘diversification indicators’ in place. Such would certainly help to track and unbundle the non-mining sectors performance at a more micro level. We strongly believe that the BDC/AfDB loan we go a long way to help in that regard. That’s on condition that we do not “do business” as usual.

Going into the future we need to heed to calls that have been made about the need to disentangle economic diversification and track it with monitoring and evaluation of programmes. This, we strongly believe will help our country to be clear on how the domestic economy fares with current strategies.

The #Bottomline is that the imperative of industrialism and by extension to diversify the economy has never been as pressing and as critical as it is today. Unemployment in a population of only two million, the harshest brunt of which is borne by the youth, continues to be on the rise. We therefore cannot afford to “misuse” the P850 million that will be coming from AfDB. After all it is a credit facility not a grant.

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The Telegraph October 28

Digital edition of The Telegraph, October 28, 2020.