Thursday, July 7, 2022

Private sector expected to lead future economic growth

One third of the National Development Plan 10 strategy for the remaining years of the plan will be to reduce the dominance of government spending in the economy and “create a private sector-enabling and supportive policy environment.”

This intent is expressed in the Midterm Review of NDP 10 that is currently being debated in parliament.

However, as even the Review acknowledges, there is a catch-22 that requires unravelling lest the stated goal is not attained.

“A key policy challenge is how the private sector can assume that role without it being heavily dependent on government spending. The remaining phase of NDP 10 implementation will address this. To ensure that it is feasible for the private sector to expand, government will reduce the ratio of total government spending to GDP,” the Review says.

The Review projects an overall GDP growth rate of around 6 per cent which will be led by the non-mining private/parastatal sector. The latter is projected to increase its share of real GDP from 71.1 percent at the beginning of the plan to nearly 78 percent by the final year. The Review says that for this to happen, the share of government value added must decline from under 14 percent at the beginning of the plan to 10.6 percent in the final year.

“To the extent that this result will be achieved, this will be resounding success of Botswana’s Private Sector Crowding in Strategy.

The key policy question that still remains is whether this seemingly success is not heavily dependent on government spending,” it says.

The Review notes that the implementation of NDP 10 coincided with the diminishing of the most profitable diamond deposits which, given the importance of that mineral, will affect the national economy and necessitate the preparation for a reduced role of government spending as the key engine of growth, and the assumption of that role by the non-diamond mining private sector. In fulfilment of the later, the Review notes that it is important to assess the capacity of the private sector to determine that it can successfully play that role. For its own part, the government recognises the need to bring about a policy environment that is private sector-friendly and highly supportive of production processes.

“Promotion of Private Public Partnership projects will boost investment in the economy and relieve government of the burden of being directly involved in the productive processes of the economy. Outsourcing of those activities that are best supplied by the private sector will increase efficiency and productivity in the system thereby enabling wealth creation to occur. However, in order for prosperity for all to be achieved, the privatisation and outsourcing process should be free of rent extraction,” the Review says.

In return for a conducive private sector-friendly environment, the government hopes that private sector investment would bring capital, managerial skills, and technological knowhow in order to achieve rapid economic growth.

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