Tuesday, October 26, 2021

Botswana’s Competitiveness conundrum

One issue that stood out from discussions on the use of the exchange rate to support exports of locally manufactured goods is that unless it is applied at the same time with other factors that make the environment competitive, then it cannot be the solution to improving the sale of goods outside the country. 

The open session of the Botswana Exporters and Manufacturers Association (BEMA)’s Special Annual General Meeting which was held last week Tuesday focused among other issues on the Pula-Rand market efficiency and its relevance to the country’s competitiveness. This sparked a debate among experts on the amount of influence the exchange rate fields have in making Botswana’s goods obtain a presence outside its own market. The exchange rate refers to the price of nation’s currency in terms of another currency. 
In his presentation, Gaotlhobogwe Motlaleng, a Senior Economics lecturer at the University of Botswana explained to the audience of local producers that the exchange rate in Botswana follows a random or non stationary walk. He says this means it is impractical to use historical prices to forecast future values of the exchange rate within an efficient market. Building on the nature of the exchange rate, he demonstrated that problematic factors in Botswana such as poor work ethic in labour force, inefficient government bureaucracy and restrictive labour laws are not pressing issues in comparison to South Africa.

Using the example of poor work ethic, Motlaleng proved that the problem ranks number one in Botswana whereas in South Africa it is less pressing at the eighth position. In highlighting such problems Motlaleng also outlined enhancers to which he advised that Botswana should prioritise in order to give local producers a lever to pull in improving their competitiveness. One such example he used is that of skill acquisition and training from tertiary institutions which he said must address industry demands. Other enhancers included technological readiness, innovation and business sophistication. He concluded by saying that “the exchange rate cannot be a panacea to make manufacturers and exporters competitive.” In clear cut terms, he told his audience that their competitiveness lags far behind and must as a matter of urgency seek to compete with the rest of the world. 

Another discussant, Dr. Howard Sigwele presented a broader picture to the subject of competitiveness in Botswana’s manufacturing and exporting sector using the 2016 Global manufacturing competitive index compiled by Deloitte. Notwithstanding the development of the sector Dr. Sigwele said not a single African country is counted among the top 10 countries which possess manufacturing competitiveness and neither will they included in the rank in the next five years. He said this indicates that Botswana, as with other African countries, should take serious heed to key factors that drive the competitiveness of manufacturing from a global perspective. Such drivers include talent, cost competitiveness, workforce productivity and an energy policy. 

“Exchange rate can influence competitiveness but on its own it won’t, it can with other factors make a difference,” he said, reiterating Motlaleng’s point. In expounding this, he cited evidence using the example of China that it used its weak Yuan to penetrate the US and European markets but however stressed that while that worked in favour of China its government also equally enhanced competitiveness of the environment using the key drivers alluded to. “We should also note that over the last fifteen years or more, the Pula periodically depreciated against other traded currencies, but it is doubtful if this spurred manufactured exports,” he highlighted. He pointed out that if such was the case then AGOA, EU and SACU export markets could have witnessed growth during the years when the Pula exchange rate was weaker.         

Subash Kapur provided a contrasting view to the discussion, advancing that the factors outside the exchange rate do not significantly contribute to competitiveness as it might be suggested, citing therefore that the exchange rate is the primary driver of competitiveness. “How can a country with a strong Pula reduce the import bill?” he quizzed. Kapur explained that Botswana has a unique composition of its import and export structure, citing the high volume of goods, estimated at 80 percent, that Botswana buys from South Africa. When selling Botswana as an attractive destination to set up a business in the import bill is often used to demonstrate the opportunity of production that could be done locally in place of buying goods from outside. However Kapur seemed to find it perplexing that with a stronger currency the import bill could be earnestly reduced. Kapur highlighted that in the past three years the Pula appreciated by 36 percent against the South African Rand.

 

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