The International Monetary Fund (IMF) deputy managing director has warned African countries that as much as the continent has many untapped opportunities, the countries will have to put their houses in order. He also proposed a new growth model for the diamond dependent Botswana.
Tao Zhang, IMF deputy managing director, who was hosted by Bank of Botswana on a two day visit that ended Thursday, said he sensed a lot of optimism about the region and the opportunity it holds. He added that Africa has a huge demographic dividend, plenty of natural resources, and untapped potential in many sectors.
“Africa is the youngest continent in the world. By 2035, it could add up to 110 million workers. The implications for the region ÔÇô and indeed for the whole world ÔÇô are huge, in terms of potential markets and opportunities,” he said. “Yet harnessing this potential means creating 20 million jobs every year through 2035. This is twice the average number of jobs created every year during 2011-2017.”
Zhang cautioned that despite the huge opportunity, countries must put their house in order to reap the benefits. He suggested for Sub-Saharan countries to reduce vulnerabilities from debt, while at same time find ways to finance large infrastructure and social spending needs. “These are essential to meet the UN Sustainable Development Goals and achieve higher and more inclusive growth,” Zhang said during his dinner remarks.
Turning to Botswana, the top economist said the global backdrop offers both opportunities and challenges. On the upside benefits, Zhang said along with the high growth rates in the United States and China, there is a pickup in diamond prices, and sales and production are on the rise. However, the downside risks involve weak recovery expected from South Africa, a development likely to impact revenues that SACU countries get.
Still, Zhang said at the IMF they are cautiously optimistic about Botswana’s prospects. “We expect a rebound in growth this year and next to about 4.5 percent ÔÇô rising further to 5 percent over the medium term. Yet here too, there are risks, and efforts are needed to get the house in order and prepare the economy for the future,” he said.
In its usual advice to governments, the IMF deputy director called for fiscal prudence which must be growth friendly and mindful of the poor. The IMF together with the World Bank has in the past spoken about the government’s huge public sector wage bill.
“This means containing public spending by adjusting its composition ÔÇô away from non-priority spending while protecting investment and social protection expenditures. It also means greater revenue mobilization, such as lower exemptions and higher collection from property taxes,” he advised.
Zhang says Botswana needs to ‘mine’ a new growth model where the role and size of the state is different and where the private sector takes the lead. Under the current model, the country is still heavily reliant on diamond exports while the private sector depends on the huge government expenditure.
Offering his thoughts on the new model, Zhang proposed four key dimensions to be explored. Firstly, the University of California educated economist called for export diversification, with consideration given to sectors with large export and employment potential, such as beef and tourism.
“Yet, unlocking the potential of these two sectors requires removing distortions and promoting market friendly solutions. This means removing monopolies to enable competition, improving air transportation and tourism infrastructure, and facilitating visa processes,” Zhang said.
He said the second dimension is creating an enabling environment for the private sector to take lead. To have the private sector play a central role in the economy, Zhang proposed business friendly reforms such high quality public services and lower bureaucratic investment requirements. He also advised that a thriving private sector also needs the support of a sound and well-developed financial system.
“Efforts to facilitate the growth of bond markets and increase access to finance will be especially important here,” he said.
Thirdly, he said when it comes to job creation it requires willingness to hire and a well trained labour force. To achieve this, he proposed well-executed education reforms, a focus on vocational training, and opening the process of work permits and visas for foreign workers.
“Understandably, the latter aspects may be a somewhat debatable. But experience has shown that exposure to qualified and well-trained domestic and foreign workers can help build skills at home. And this is critical to upgrade the skill set of local workers. “
On his last point, Zhang called on the public sector to play its role in the new growth model. He says as the private sector develops, the public sector should step back and refocus its objectives; providing high quality and cost effective public services, including infrastructure. Furthermore, he says this also means divesting state owned enterprises and consolidation of parastatals where appropriate.
In conclusion, the IMF deputy chief said Botswana reminded him of a Chinese proverb which reads “The finest diamond needs to be cut.”
To this end, he said: “Your country has such finest diamond ÔÇô potential. To unlock it, there is a need to ‘cut’ loose with the old growth model, and ‘polish’ the new one. I am encouraged by what I heard from His Excellency President Masisi, policymakers, and business leaders when I met them today that the right choices will be made to transition the country to a new sustainable model with more jobs and higher and more inclusive growth.”