Tuesday, June 22, 2021

Public infrastructure provision stimulates competitiveness and productivity

The World Bank in 1994 asserted that the provision of infrastructure in its right quantity and quality determines the success or failure. Botswana government recognizes the importance of efficient provision of public infrastructure and utilities to support competitiveness and productivity.

A 2019 research paper by the Botswana Institute for Development Policy Analysis (BIDPA) Associate Researcher Mpho Raboloko acknowledges that Botswana has made “significant infrastructure progress in recent years, spanning the transport, water and sanitation, power, and mobile telephony sectors” while government has also invested heavily on the construction and maintenance of the tarred roads since independence.

The research paper, titled: “The Impact of Infrastructure on Economic Growth in Botswana” explains that the increasing trend of the length of roads maintained by the central government is indicative of “government’s continued investment in transport infrastructure particularly road transport which is the most commonly used mode of transport in the country”.

The research paper further reckons that government has invested heavily on the construction of public schools (primary and secondary). In 1980, there were 415 schools in the country. By 2015, the number had grown exponentially to 993, a complete double and this clearly shows the country’s commitment to attaining higher level of human capital development.

In 1980, there were 339 health facilities in the country and by 2015 there were 700 health facilities including hospitals, clinics and health posts. Between the years 1980 and 2015, electricity distribution in the country has been on the rising trend, although there were periods of serious power shortages: the most recent being the 2008 power crisis.

According to the research paper, the full operation of the 600 megawatt Morupule B power station in 2016 contributed to the stabilization of electricity supply in the country. The upward trend is a result of the government’s effort in generating electricity locally as well as importing from neighbouring South Africa.

“Clearly Botswana has some significant progress in terms of infrastructure development in recent years. Notwithstanding this, the country is still faced with several infrastructure challenges some of which include a sizable investment on maintenance and upgrading of existing infrastructure such as roads”, states Raboloko.

The research paper also recognizes that good infrastructure is an important variable towards improving productivity and competitiveness which ultimately lead to increased economic growth. It is also argued by experts that specific types of investment, such as public infrastructure and machinery and equipment, have a strong association with productivity and growth.

Long term economic growth is explained by both measures of infrastructure (electricity and maintenance of roads). However, electricity distribution is found to have greater impact on economic growth than roads maintenance.

The research also found that in the long run, the number of health facilities has a positive and significant impact on gross domestic product (GDP) per capita (economic growth) such that a one percent increase in the number of health facilities will lead to approximately 0.108 percent increase in GDP per capita.

The result also shows that, in the long run, a one percent increase in trade openness will lead to approximately 0.323 percent in GDP per capita. However, the number of schools established, electric power consumption, maintenance of road infrastructure and the lending real interest rate do not have significant impact on GDP per capita in the long run.

“The results of the long run estimation show that only healthcare infrastructure has a positive and significant impact on GDP per capita in Botswana which implies that healthcare infrastructure plays an important role in driving economic growth in Botswana. However, the results that the number of schools established, electric power consumption and the total length of roads maintained by central government do not have a significant impact on economic growth in the short run” states the study.

According to the study, a couple of control variables were included in the analysis and these included trade openness and the lending interest rate. Consistent with economic theory, trade openness was found to significantly and positively contribute to economic growth in the short run and in the long run. However, the lending real interest rate was found to have no significant impact in influencing economic growth in Botswana in both the short run and the long run.

“It is widely accepted that health is an important element of human capital formation, and that the improvement of health produces a positive effect on the generation of economic growth and productivity. Therefore, it should be in the interest of policymakers to prioritize healthcare infrastructure in order to spur economic growth of the country”, the study advises.

Another research paper, titled: “Transportation and Economic Development in Botswana: A Case Study” acknowledges that the government’s policy in developing road infrastructure aimed at striking a balance between major road construction and the improvement and upgrading of roads serving rural areas.

The result of the road building programme was that Botswana’s road network min mid 1989 had increased to approximately 2400 kms of bitumen and 2200kms of engineered, gravel roads.

It is reckoned that the government already plays a major role in the transport sector by virtue of its policy of assuring responsibility for transport infrastructure. In the exceptional cases where infrastructure is built by private organizations for public use, the standards of design and construction will need to be approved by the relevant government authority.

“Because vast sums have been spent on developing infrastructure, it would not be prudent to allow privately owned transport infrastructure to be constructed, for private use, or expanded economically to accommodate additional traffic”, study advises.

According to the research study, the policy on further development of infrastructure will be to consider on the basis of economic justification with particular consideration of non-quantifiable strategic and social factors in individual cases, including environmental aspects.

It is also explained that leaving aside the provision of infrastructure, government’s investment policies in transport will vary in the different sub-sectors, depending on the characteristics of the mode. Government’s share of activities in it and the mix of policy instruments available in each case will guide the way forward.

The study is also quick to point out that “it is a government policy to encourage citizen contractors in construction activities, including road construction and maintenance. Without compromising on quality, financial guarantee requirements are reduced for such firms and assistance will be provided to help them learn skills of tendering, controlling projects and monitoring costs. Certain activities are also to be reserved for citizen firms as an inducement for them to enter field” adding that “the future development of the transport sector in Botswana will have a catalytic effect on the country’s economic development”.

Strike Mbulawa in his 2017 research paper titled: “The Impact of Economic Infrastructure on Long Term Economic Growth in Botswana” observed that government’s resolve to increase expenditure on roads and improved generation of electricity will boost economic growth.

According to Mbulawa, the levels of expenditure that have been assigned towards the improvement of infrastructure are an indication of the commitment of driving growth.

The impact of infrastructure development on growth has been studied in both developing and developed countries. The availability or absence of infrastructure influences the level of development of a country or region. The quality and type of infrastructure influences the level of productivity of economic agents and economic growth.

Infrastructure, from the households’ point of view is regarded as final consumption expenditure, while the firms’ point of view is an intermediate expenditure. Economic infrastructure has been defined as as the infrastructure that promotes economic activity which includes roads, sea ports, airports, railroads, electricity, water supply and sanitation. Social infrastructure has been defined as that which promotes health, education and cultural standards.

Expenditure on road networks helps in the facilitation of easy transportation of goods and economic agents hence contributing to economic growth. Improvement in the transport infrastructure adds to existing capital stock forming the foundation upon which the economy prospers and that “total public infrastructure capital investments have a significant boost on economic growth”.

The Mbulawa study has shown that infrastructure (measured by improvement in road network and electricity distribution) contributes to high economic growth in the long term. Clearly the results support the infrastructure led growth in the long term. Again results show that capital is also important for enhancing growth initiatives “and “thus any conservation strategy on development of infr5astyructure will retard growth”.

The research study in conclusion recommends that government improve capital buy subsidizing human capital development to avoid reduction in consumption which may adversely affect the rate of growth.

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