Wednesday, October 20, 2021

‘Diversification indicators’ would tell us if we are treading ‘diworsification’ path

Initially described in Peter Lynch’s book, “One Up On Wall Street” (1989), as a company specific problem, the term “diworsification” has since morphed into a buzzword used to describe inefficient diversification as it relates to an entire investment portfolio. 

In our view, the term is best suited to describe our economy at the moment. 

Elsewhere, several countries have placed economic diversification efforts on promoting industrialisation. An economical tactic that is premised on the belief that industrialisation provides greater potential for long term growth. 

There’s no doubt about it. We are in a global economy, and to try and ignore that reality would be tantamount to sticking one’s head in the sand, like an ostrich, and try to pretend the rules of the world does not apply to us.

As former cabinet minister David Magang observed in one of his macro economics books, diversification has always been the ‘catchphrase’ backdrop in all government budget speeches since the days of our first president, Sir Seretse Khama until this era of his first born. 

Magang, who was a senior minister responsible for minerals at some point, is right when he says our government has over the years emplaced a plethora of policies, strategies and programmes aimed at diversifying the economy, but to no avail. The little diversification that might have taken place over the years is scarcely reflected in employment numbers. 

Botswana’s official employment rate has been pegged at 20 percent as at 2013 from 17.80 percent in 2010. Archived figures show that the country’s unemployment rate averaged 18.42 percent from 1991 until 2013, reaching an all time high of 23.80 percent in 2006 and a record low of 13.90 percent in 1991. 

This has left Magang wondering why a country like Botswana, with a population estimated at around two million, has such high rates of unemployment.

“Why should there be unemployment at all in a teeny-weeny population of only two million? Why should our people be without work when the ground we tread practically pulsates with those famed, wildly popular precious stones that a far sighted economic manager should have long beneficiated to churn out a whole galaxy of downstream industries that should have guaranteed full employment?” Magang rhetorically asks. 

Government documentation, however, shows that thus far, diversification has focused on export-oriented manufacture of textiles, leather, glass, and jewellery. Some of the projects such as the Palapye glass project have since collapsed while the much anticipated Leather Park in Lobatse is yet to come to fruition. The projects were expected to create massive job opportunities for thousands of youth who are currently roaming the streets.

The sad reality is that if we do not change economic tactics, the 11 percent level of manufacturing employment which we attained in 1998 could be the highest that we will ever achieve. To this date, Botswana’s growth and overall macroeconomic outlook remain critically dependent on value addition in the diamond sector. 

At the same time, our private sector continues to be narrow and shallow, characterised by weak inter sectoral diversity and production links, and high dependency on public expenditure. This is ‘diworsification’ at its best. 

In recent years, economic observers have expressed concern about a phenomenon known as premature ‘de-industrialisation’. The phenomenon is said to be playing itself out in developing countries including our country. 

Notwithstanding implementation of a succession of policies for economic diversification over the years, the domestic economy remains heavily dependent on the mining sector, particularly diamond mining. 

The imperative of industrialism and by extension to diversify the economy has never been as pressing and as critical as it is today. Unemployment in a population of only two million, the harshest brunt of which is borne by the youth, continues to be on the rise. 

In the meantime though, we need to heed to calls that have been made about the need to disentangle economic diversification and track it with monitoring and evaluation of programmes. This, we strongly believe will help our country to be clear on how the domestic economy fares with current strategies.

We all got to agree to disagree that as it stands, it is not clear the extent to which our country is diversifying and performing. This in our view is because deliberations on diversification tend to be at a more aggregated level. As such we fully subscribe to the notion that in order to have a deeper understanding of whether diversification strategies are paying off, there is need to have ‘diversification indicators’ in place. Such would certainly help to track and unbundle the non-mining sectors performance at a more micro level. 

The #Bottomline therefore is that monitoring and evaluation of our diversification policies is key for any policy implementation since such will aid in assessing its effectiveness in meeting and attaining specific goals such as economic growth and job creation. 

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