Monday, January 24, 2022

Botswana’s manufacturing sector in 31-year old coma

It sounded like bad news when in his 2014/15 budget speech, finance minister, Kenneth Matambo, spoke of “sluggish growth” in the manufacturing sector. News from the International Labour Organisation is even worse: “more than half of developing countries in each income category saw contractions in their manufacturing shares in GDP between 1980 and 2011.”

Botswana is in the upper-middle income category and for the said period, the share of manufacturing contribution to GDP has been in negative territory. This is not to say that the sector is dead and buried. ILO says that “while there has been much churning in the manufacturing sector, in terms of share of GDP, in these [countries] most changes have been relatively small.” 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 profile is of the Hyundai operation in Gaborone being shut down, gutted and relocated to South Africa.

As a labour-focussed organisation, ILO views manufacturing through the prism of workers’ interests.

Its 2014 report focuses on quality job creation and considers manufacturing in such light. The report says that GDP growth is more consistently led by manufacturing growth than by growth in other sectors and that higher income groups among developing countries have relied more on manufacturing growth to lead their GDP growth over the past third of a century. By ILO’s estimate, a 1 percentage point increase in manufacturing growth leads to a 0.34 percentage point increase in GDP growth, but a 1 percentage point increase in the rest of industry’s growth rate leads to a much smaller 0.17 percentage point increase in GDP growth rate.

The South African example shows that manufacturing has the potential to generate quality jobs both directly and indirectly through linkages to other sectors and income-induced effects. ILO says that countries that have made the greatest investment in quality jobs from the early 2000s, living standards (as measured by the growth in average annual per capita income) improved more than in developing and emerging economies that paid less attention to quality jobs.

As in the case of Botswana, the poor performance of the manufacturing sector is ample evidence that there has been negative impact on job quality. Countries that were successful in reducing the incidence of vulnerable employment during the early 2000s enjoyed significant economic growth after 2007. In these countries, per capita growth was almost 3 percent cent per year between 2007 and 2012, practically 1 percentage point higher than in countries making least progress in reducing the incidence of vulnerable employment.

“More than half of the developing world’s workers (that is, nearly 1.5 billion people) are in vulnerable employment. These workers are less likely than wage earners to have formal working arrangements, be covered by social protection such as pensions and health care or have regular earnings. They tend to be trapped in a vicious circle of low-productivity occupations, poor remuneration and limited ability to invest in their families’ health and education, which in turn dampens overall development and growth prospects ÔÇô not only for themselves but for generations to follow. In South Asia and sub-Saharan Africa, more than three out of four workers are in vulnerable forms of employment, with women disproportionately affected compared to men,” the report says.

Despite the sector’s sluggishness, Matambo said that it has potential to contribute towards economic growth and employment creation.

“Therefore, through efforts by agencies such as Botswana Investment and Trade Centre, government will continue to promote domestic and foreign direct investment into the sector and provide targeted fiscal incentives to major manufacturing projects to enhance value addition and competitiveness of their products,” he said in his budget speech.

However, the solutions are themselves difficult to achieve because they are wrapped in problems. Despite being politically stable and having one of the most globally-integrated economies in Africa, Botswana has among the lowest FDI flows in the Southern African Development Community. The case of a major glass manufacturing project in Palapye shows that because of the huge sums of money involved, “major” is going to bring its own set of major problems.

RELATED STORIES

Read this week's paper