Friday, October 23, 2020

Doubts cast over Botswana’s economic diversification

Fierce competitions from world markets that have risen from the globalization tide make economic diversification imperative ÔÇô consequently as part of the Anniversary celebrations the 40th Anniversary committee partnered with Botswana Institute for Development Policy Analysis (BIDPA) and Friedrich Ebert Foundation (FES) came up with a forum that discussed economic diversification.

Speaking at the seminar held at Grand Palm, dubbed “National Forum; Economic Diversification in Botswana”, the Executive Secretary of BIDPA, Happy Fidzani, said a broad economic base serves as an insurance scheme for the economy in that when one sector stumbles, others are able to pick up the pieces and move to higher levels of output and performance.

He said that the mono-cultural nature of Botswana’s economy makes it crucial for the economic diversification of the dominate Botswana’s development strategy.

He also said that the governments tendency to dominate the non-mineral sector has extended government’s heavy confidence on the mining sector for its revenue and the rest of the non-mineral sector of the economy profoundly depends on the government spending of those revenues.

He said that “shocks originating from the mining sector can be easily felt across the economy, thus creating a parasitic dependency on government, which continues to be heavily dependent upon the long tem performance of the diamond sector.”

He cited that the government budget appears to be moving from the surplus phase to a deficit phase.
“That raises questions of whether Botswana is out of the woods yet in relation to the resource curse. This further casts doubt on whether it will be easy to diversify the economy further,” Fidzani said.

Regarding challenges to economic diversification, Fidzani said issues of small market, weak private sector that overly depends on government, labor market miss-match characterized by skill shortage coexisting with high graduate unemployment seem to emerge, – “all these pose serious obstacles to economic diversification.”

He said on the opportunity front, services seem to over shadow some element of hope particularly tourism, financial sector, education and health sector.

BIDPA also took the opportunity to launch a research book on the country’s economic diversification. The book was compiled with the collaboration between BIDPA and World Bank. The research material, which predominantly focuses on export diversification, was collected between 2004 and 2005.
However reports by Bank of Botswana (2001) and BIDPA (2002 confirmed that, to some extent, economic diversification has taken place over the two and a half decade. Using the Herfindal index, both studies concluded that, since the mid 1980s Botswana’s economy has reduced its dependency on the mining sector.

The BIDPA study states that the non-mining sectors were responsible for 64% of the real growth that took place over the 25 year period, from 1974/75 to 1999/2000, while the mining sector contributed 34%.

Moreover, Bank of Botswana states that from 1974/75 to 1999/2000 the economy grew by 9.1% and the non-mining sectors as a whole (excluding agriculture) also grew at that rate. Both studies however mentioned that the economy did not achieve a broad-based economic growth.

Bank of Botswana reported that, “however, the foundations of this diversification are lacking in depth, remain fragile and results in terms of providing employment opportunities have been less than hoped for.”

Also speaking at the event, Assistant Minister of Finance and Development Planning, Duncan Mlazie, said when Botswana gained independence, about 87% of the workforce was engaged in subsistence agriculture which, then, accounted for over 40% of Gross Domestic Product (GDP).

He said the diversification of the economy is essential because though the production of rough diamond is on average a high return activity, it is also a high risk activity, saying that “diamond extraction has been the source of very rapid growth, but in some years real mineral GPD has fallen sharply.

In the face of high variability of diamonds, the trade-off is clear ÔÇô we can reduce the variability of total economic activity, but that can only be done by expanding activities outside of diamond extraction, which may have a lower return.”

“Further diversification will be assisted considerably by the favorable rankings Botswana has received in various international ratings. Moody’s Investors Service sovereign credit rating of Botswana is the highest in Africa, reflecting a very low level of debt, exceptionally comfortable liquidity position and prudent management of diamond export earnings.

Botswana has also been rated number one in Africa by the Heritage Foundation, in collaboration with the Wall Street Journal, with respect to economic freedom,” Mlazie cited.

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