Tuesday, May 18, 2021

Policy reform must complement manufacturing sector stimulus

Perhaps the issue is not that the manufacturing sector needs a funding boost by government, but that it needs to address underlying issues regarding its competitiveness.

Analysts define competitiveness as the ability of a firm to sell and supply high value goods and services to a market outside its host country, in excess of what it buys from the outside market. The Botswana Exporters and Manufacturers Association (BEMA) as well as the Botswana Investment and Trade Centre (BITC) demonstrate through their initiatives a shared effort in supporting local manufacturers through targeted and responsive interventions aimed at improving and increasing capacity for their export readiness. The penetration of the export market, as expounded by both BEMA and BITC ignites the capability of local producers to harness their growth potential and maximize their production to levels that enable them to significantly contribute to economic growth.

An assessment of BITC figures on Botswana’s export performance highlights an upward trend in the number of exports, expressed in US Dollars. But a closer look at the export dynamics depicts an unsettling trend over the period 2003-2010, that constrains export growth to reach the desired meaningful levels. The number of new entrants into the total number of exporters treads too closely to the number of exits, which demonstrates a cancellation and as a result subjects the growth of exporters to an immaterial shift. The data shows that over an extended period of seven years exporters increased by 663 from 1,192 in 2003 to 1,855 in 2010. BITC highlights production capacity, standards that do not support exporting and in-land shipping costs as some of the obstacles that local producers have to contend with when exporting goods.

In an interview with Sunday Standard Nkosi Mwaba, President of BEMA, opined that local producers should be given an opportunity to at least try and improve their competitiveness. He added that local producers have immense export potential that only require policy reforms to be harnessed.  In anticipation of the proposed economic stimulus package (ESP), which is expected to revamp the state of manufacturing in Botswana, Mwaba advised that an appropriate stimulus would be one that will provide incentives to export ready companies in terms of policy and legislative framework.

“It needs to come alongside policy reforms. If the policy mechanism reacts quickly enough to go along with the ESP then it will be ideal. Under the current circumstances that local producers are operating in, the ESP on its own will have a lot of challenges. It can only work if it comes with reforms that are more pro-local development, pro-industrialization and pro-diversification,” said Mwaba.

The current negating economic conditions, particularly government’s tight grip on it’s spending, lends credence to economists’ long held view that businesses’ over reliance on government tenders and contracts will not result in sustainable growth. Such businesses normally exist for the period of the government contract and are pronounced dead shortly after the government contract ends, which reflect lack of competitiveness on the part of the firms. In that regard, Mwaba said the ESP must critically consider and prioritize local procurement efforts through effective and practical implementation of local preference schemes so as to spur firms into improving their production capacity. He added that businesses are hesitant to invest in growth as there are certain loopholes, inconsistencies and uncertainties that allow foreign companies to be awarded jobs that could be reserved for local producers.

“This deters investors and diminishes their confidence to invest as they are not sure that in doing so they will benefit from the local procurement scheme,” said Mwaba.

He added that putting money into a project is a difficult decision that local producers have to make, such that the policy and legislative environment must be conducive so as to encourage local investment.

“The uncertainty of availability of tenders to the local market causes local investors to keep their money in their pockets,” said Mwaba.

RELATED STORIES

Read this week's paper