IMF this week said Botswana needs to vigorously search for new economic drivers as the country’s long-term success on the back of natural resource exports seems to be fading and warned the country to make its investment climate attractive.
Naoyuki Shinohara, the Deputy MD of the Washington based institution stated global economic rebalancing could be a benefit to the diamond rich nation.
“On the demand side, Botswana needs to focus on new drivers for export growth,” Shinohara told a public lecture.
IMF said rebalancing and greater reliance of Asian economies as well as the BRICS on their domestic sources of growth could offer Botswana opportunities to export more traditional products such as zinc, nickel as well as meat and non-traditional exports, such as tourism.
BRICS block represents emerging economies of Brazil, Russia, India, and China that have been driving global economic growth.
The ties between the BRICs and countries in sub-Saharan Africa have increased rapidly over the past decade and have become new growth drivers for these countries.
However, IMF advised that Botswana should not single out one sector as a panacea to economic diversification. Shinohara rather wants the country to make itself attractive to investment.
“The most important question to ask is whether the country is attractive.”
He said many countries have identified a ‘strategic sector’ and provided subsidies, but his view is that ‘it is ultimately the market, which decides which sector is most productive’.
“I know the government in Botswana is capable.”
Shinohara advised that the search for new sectors could focus on exploiting Botswana’s existing capabilities that put it at a ‘comparative advantage vis-├á-vis’ its competitors given its track record of prudent management of public resources and a stable macroeconomic policy environment.
Botswana has a large mining investment, including processing plants in Selebi Phikwe at the BCL mine and diamond cutting factories.
“Foreign direct investment, which is now confined to the diamond sector, may be attracted in such areas such as tourism, trade, and telecommunication if the costs of doing business are lowered,” he said.
“From a macroeconomic perspective, diamond exports are expected to plateau over the next decade or thereabout. Thus, current account deficits may become the norm unless efforts to substantially increase non-diamond exports take hold.”
The IMF chief also implored Botswana has to work on improving productivity levels that have been falling since the highs of the period between 1995-1999 and advised that the public sector should be supportive of the private sector.
The private sector has been identified as the next driver of the economy, but their growth has been affected by the government policies that are not supportive of the smooth running.
Shinohara stated that in addition of the country preserving the macroeconomic stability, government policies need to support private sector activity through regulatory and other structural reforms that would ease the cost of doing business in the country.
“Recent findings in the October 2010 National Business Confederation report suggests that Botswana needs to do more to improve competitiveness, facilitate cross-border trade, and simplify and reduce the number of procedures required to start a business.”