Sunday, February 28, 2021

Botswana could be prematurely de-industrialising

The 11 percent level of manufacturing employment attained by Botswana in 1998 could be the highest that the country will ever achieve, after reports emerged that the country might be undergoing de-industrialisation.
The suggestion was made by the International Labour Organisation (ILO) in its 2015 World Employment and Social Outlook report. In recent years, observers have expressed concern about a phenomenon known as premature de-industrialisation which is playing itself out in developing countries. Among this group is Dani Rodrik, an economist at Princeton University in the United States, who coined the term ‘de-industrialisation’.
The ILO says countries seem to start de-industrialising earlier on their path of economic development as peak levels of manufacturing output and employment are considerably lower than in the past. Botswana, whose share of workers in manufacturing employment peaked at 11 percent in 1998, has been cited as an example. The worst performer is Madagascar whose manufacturing employment rate was a mere 6 percent in 2003.
Rodrik defines premature de-industrialising as a phenomenon that occurs when developing countries start to de-industrialise and become more dependent on services at much lower levels of income than has been the pattern for developed countries. He gives the example of most of today’s advanced economies which transformed themselves through a progression of manufacturing industries. Through this process, peasants became factory workers, resulting in an unprecedented rise in economic productivity as well as a wholesale revolution in social and political organisation.
“In Britain, the birthplace of the Industrial Revolution, manufacturing’s share of employment peaked at around 45 percent before World War I and then fell to just above 30 percent, where it hovered until the early 1970’s, when it began a precipitous decline. Manufacturing now accounts for slightly less than 10 percent of the workforce. All other rich economies have gone through a similar cycle of industrialization followed by de-industrialisation,” he says.
In the United States, manufacturing employed less than 3 percent of the labour force in the early nineteenth century. After reaching 25-27 percent in the middle third of the twentieth century, de-industrialisation set in and manufacturing has absorbed less than 10 percent of the labour force in recent years. In Sweden, employment in manufacturing peaked at 33 percent in the mid-1960’s, before falling to the low teens. Even in Germany, often regarded as the strongest manufacturing economy in the developed world, manufacturing employment peaked around 1970, at close to 40 percent, and has been steadily declining ever since.
However, Rodrik says the developing world’s pattern of industrialisation has been different as not only was the process slow, but de-industrialisation set in much sooner. The latter category includes Botswana which has seen contractions in its manufacturing shares in GDP since 1998. ILO’s explanation is that a few large countries achieved manufacturing gains at the expense of a number of small ones, whose manufacturing sectors have shrunk over time. A good Botswana example that fits that description is the Hyundai operation in Gaborone, which was shut down, gutted and relocated to South Africa.
Rodrik suggests that developing countries need a new growth model as manufacturing has run its course and become much more capital and skill intensive to absorb large amounts of labour from the countryside. He recommends services which already contribute the bulk of GDP in developing countries, even in low-income countries where agriculture has traditionally played a big part.
“Young workers who leave the farm for the cities are increasingly absorbed into urban services jobs instead of manufacturing. And international trade in services has tended to expand more rapidly than trade in goods,” Rodrik says.
Botswana is not doing too well in that regard. A report prepared for the British High Commission by a Cape Town-based consultancy firm called Imani Development (International) says that “services are the future for Botswana’s economy yet they are neglected.” Imani also gives the Botswana Investment Trade Centre (BITC) low marks for its effort to attract foreign direct investment, noting that BITC mainly focuses on manufacturing and loses out on the window of opportunity on services that Botswana has at the moment.

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