Sunday, March 3, 2024

To avoid diworsification we need to develop diversification indicators

Initially described in Peter Lynch’s book, “One Up On Wall Street” (1989), as a company specific problem, the term “diworsification” has 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.

Here in Botswana diversification has always been the ‘catchphrase’ backdrop in all government budget speeches since the days of our first President, Sir Seretse Khama.

Over the recent years, Botswana’s approach to economic diversification has emphasized the manufacturing sector, which has received large-scale public investment and preferential funding. Nevertheless, industrialization has so far remained elusive.

To this date, Botswana’s growth and overall macroeconomic outlook remain critically dependent on value addition in the diamond sector.

At the same time, Botswana’s private sector continues to be narrow and shallow, characterized by weak inter sectoral diversity and production links, and high dependency on public expenditure.

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.

At the same time, given recent economic trends such as closure of big businesses such as breweries depots, Botswana might be undergoing de-industrialisation instead of industrialising.

As it stands, it is not clear the extent to which our country is diversifying and performing.

The need to industrialise and by extension to diversify the economy has never been as pressing and as critical as it is today. It is widely held that a diversified economy is less sensitive to the ups and downs associated with any particular industry because risk is spread more evenly across a number of industries. With diversification, even if some industries are suffering, other stronger industries will help the economy maintain healthy growth.

The failure to diversify is put on the spotlight by economic indicators such as unemployment rate and wealth distribution. Unemployment in a population of only two million, the harshest brunt of which is borne by the youth, continues to be on the rise. On the other side, the level of economic inequalities continues to grow. Batswana remain moneyless, jobless and landless.

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.

From where we stand, the interest in diversification becomes particularly intense when uncertainties emerge over our capability to persuade investors to come set up industries here. The challenge is becoming even harder given recent political climate in neighbouring countries, Zimbabwe and South Africa. The two neighbours have always been the partial reason why we never industrialised in the first place. The change of political leadership and increase in investor confidence in their economies could only mean a loss to Botswana. If we failed to attract investors when the economies were on their knees, it might be even more difficult for us to beat them at attracting foreign direct investment.

In the meantime 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 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 amongst other things the non-mining sectors performance at a more micro level.

We strongly believe 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 job creation.

Diversification indicators would in a way help in drafting policies which should focus on human resource development, investment infrastructure, and the creation of an environment where business and innovative ideas can grow. This will help private sectors to expand their operations and grab hold of new opportunities that destroy resource dependence of the nation.

The #Bottomline is that diversification is in a way employment insurance ÔÇô atleast for the few Batswana who still got their jobs. As we can learn from more diversified economies, they are experiencing lower unemployment during cyclical downturns. An argument can also be put that the more diversified the economy becomes, the more resilient it becomes to external events and developments.


Read this week's paper