BY VICTOR BAATWENG
With 17 years left before 2036 ÔÇô the year, in which Botswana aspires to become a high-income country, economic pundits are already questioning whether the country is trapped in the middle-income bracket. Economic indicators and data show that the country’s transition to becoming a prosperous and modern economy has only just begun. Having been declared by the World Bank as an upper-middle income country in 2005, the country seems to be stuck, at least for now in that bracket.
Globally, the notion of a middle-income trap has generated much interest and discussion, but little consensus. There is no agreement on what the trap is or how long a country needs to be at the middle-income stage to be considered trapped.
The global debate centers on a well-known stylized fact. Many countries, including Botswana made the jump from low income to middle income, but only a handful were able to make the final jump from middle income to high income. Economists suggest several structural factors, such as the shift from input-led growth to productivity- and innovation-led growth, make the middle-to-high transition more challenging.
For Botswana, some economic pundits are of the view that with the right mix of policies and laws, the country can still change its fortunes by 2036 and earn a few more tiger stripes.
The country’s central bank says to move to the next economic stage Botswana needs a through introspection of its Development Financial Institutions otherwise known as DFIs.
DFIs are specialised banks/entities set up usually by states to support economic development. In Botswana DFIs include the Citizen Entrepreneurial Development Agency – CEDA, Botswana Development Corporation ÔÇô BDC and the National Development Bank ÔÇô NDB.
Bank of Botswana says the overall performance of the FDIs in Botswana has been lacklustre, evidenced by recurring episodes of restructuring, refinancing and closures.
The bank says given the desire to support the industrialisation objective and the positive experience of other countries, a reassessment of the potential for the local development finance institutions is warranted.
“Beyond the private financial institutions, there is evidence from the experience of other countries that development finance institutions can be effectively harnessed to drive the industrialisation agenda”, says Director of the Department of Research and Financial Stability at BoB – Dr Tshokologo Kganetsano.
Kganetsano says broadly, there are three areas that Botswana needs to consider going forward. The first he says is evaluating the prospects for integration and alignment of the operations and deliverables of the key development finance institutions with the cluster/hub/SEZA industrialisation strategy.
“This will also entail a domestic focus for all the development finance institutions to ensure the concentration of resources and effort towards execution of the strategy.”
The second thing, Kganetsano says will be to reconsider the scale of operations and, therefore, resource allocation and access of DFIs. He noted that to be effective and have the desired impact, the scale of operations and resources availed to FDIs should be much larger than current levels.
“A higher level of funding is needed to support large scale industrial projects and businesses, which might also involve infrastructure development”, Kganetsano says.
Thirdly, Kganetsano point to the direction of governance and accountability. He says in general autonomous institutions are more successful compared to those that are run with active government involvement in governance.
“There is also a strong case for outsourcing development and industrialisation funds to commercial banks, where there is better project evaluation, monitoring and loan recovery, which is an option for CEDA and NDB (allocated funds)”, Kganetsano says.
By making FDIs more productive Botswana is as such expected to easily advance its mission to become a higher income country by 2036.
Elsewhere developing and developed countries have also leaned on FDIs to advance economic growth. Critical to China’s economic successes has been the important use of the country’s state backed banking institutions. The United Kingdom ÔÇô whose Prime Minister – Theresa May is set to step down on June 7, 2019 has also directed a big influx of capital toward its DFI – the CDC Group. Another case study is Canada which created a DFI in 2018 while big brother – the US is set to launch a new DFI this year with more capabilities and double the investment capacity than its current institution.
In closing the Bank of Botswana says clear that the financing gap in the country is not necessarily due to the quantum of funds but is fundamentally due to paucity of innovation and deficient governance and operational processes in intermediation.
“It is, therefore, important to address the policy and administrative aspects in order to engender enhanced resource mobilisation, alignment of productive resource allocation with the industrialisation strategy and a transition towards more autonomy for development institutions but balanced with a domestic focus and a clear accountability framework for deliverables”, read part of the BOB 2018 annual report.
The private sector mouthpiece ÔÇô Business Botswana for its part believes that over time, it became apparent that Botswana’s continued reliance on diamonds as the main driver of economic activity is unsustainable hence the need to diversify the economy as a matter of urgency.
“While the country has made strides towards “Prosperity for All”, it is still faced with a number of challenges. The successes of the past do not necessarily guarantee future success in raising living standards”, reads part of the concept paper of the BB 2018 national Business Conference.
Another think tank ÔÇô the Botswana Institute for Development Policy Analysis (BIDPA)’s Patrick Malope cautioned in September 2018 that the country should not move into the upper economic bracket leaving its Small and Micro Enterprises sector behind. Malope says the sector has the potential to increase income for those employed in it and hence contribute to the Gross Domestic Product growth and diversification.
It is estimated that the sector contributes 35-40 percent to Botswana’s GDP.
“The sector is important for inclusive growth ÔÇô we do not want a high-income Botswana with poor people”, Malope said.
