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Inefficiency and corruption cripples Botswana’s economic diversification

Publishing Date : 12 February, 2019

Ndulamo Anthony Morima

As gleaned from this year’s Budget Speech, Government, at least at a policy and programme level, prioritises economic diversification. The question is: does Government, in effect, do enough to attain economic diversification?   

According to the Minister of Finance & Economic Development, Honourable Kenneth Matambo, “… efforts by the Government to diversify the domestic economy continue to yield positive results, as evidenced by the decline in the share of mining sector in the value addition, with a corresponding increase in the contribution of the non-mining sectors…”

He continued to say that “… mining sector’s share to the Gross Domestic Product (GDP) declined from 25 percent in 2008 to 18 percent in 2018, while the contribution of non-mining sectors increased from 75 percent to 82 percent over the same period…” What this means is that, for a period of ten years, the mining sector’s share to the GDP declined by seven percent, while the contribution of non-mining sectors increased by seven percent. The question is: is this percentage the best that Botswana could have attained, all factors considered.

In my view, though the first half of the period 2008 to 2018 was during the world economic recession, Botswana could have attained ten percent or more were it not for the inefficiencies and corruption bedevilling Government. The Selibe Phikwe Economic Diversification Unit (SPEDU) project, which failed to diversify the economy of Selibe Phikwe and surrounding villages away from copper and nickel reliance until the closure of the Selibe Phikwe mine, is one typical example of how inefficiency cripples Government’s economic diversification goals.

That Government has approved a set of incentives for the SPEDU region, which include five percent corporate tax rate for the first five years and ten percent thereafter, for companies setting up in the SPEDU region, under the sectors of tourism, agriculture, and manufacturing, as Honourable Matambo assets, has long been known.

The same applies to the fact that twelve companies were assessed and ten have been approved. The question is: has there been stimulation of economic activity in the Agri-business; Manufacturing; Infrastructure Development; and Information, Communication and Technology sectors as had been envisaged?

The fact is that since 2008 when the SPEDU programme was established Government has failed to diversify the economy of Selibe Phikwe and surrounding villages. Therefore, Government’s pledge to intensify its effort to facilitate such growth in the coming years rings empty.
It, therefore, cannot be correct, as Honourable Matambo claims, that this, that is, the seven percent performance, is consistent with the Government’s efforts to reduce the dependence of the economy on the mining sector, which is susceptible to external shocks.

That there is need to intensify efforts to diversify the country’s exports and government revenue sources as Honourable Matambo assets is stating the obvious. In Honourable Matambo’s own admission, “… diamonds exports continue to dominate the trade account, while mineral and customs revenues account for over two-thirds of government revenues…”  Since we have known this from time immemorial, the question is: how many manufacturing industries, for instance, has Government played a role in establishing?

Granted, government needs to be commended for assisting some entrepreneurs to, through the African Growth and Opportunity Act (AGOA) programme, venture into the textile industry, but there has been little or no progress in the manufacturing sector. Despite the fact we have two abattoirs which supply a market as large as Europe with beef, Government has failed to facilitate or promote the establishment of a manufacturing industry for such products as leather, glue, etc.    

In one of the few instances that government attempted to use manufacturing to diversify the economy, that is, the Fengyue Palapye Glass Project, inefficiency and corruption had the upper hand, resulting in loss of millions of Pula since the project was sponsored by the public purse through the Botswana Development Corporation (BDC). Consequently, as Honourable Matambo admits, “… the country’s dependency on one commodity for exports, and two major sources of revenues, i.e. mineral and customs revenues, poses a systemic risk to our economy…”

Though Honourable Matambo claims that Government pledges to continue with efforts to diversify the economy in general, and its exports and government revenues, in particular, there is little evidence to support that. As Honourable Matambo stated during this year’s Budget Speech, “… one of the strategic initiatives identified to promote economic diversification is the Economic Diversification Drive (EDD), which was established in April 2010…”

The question is: did Government maximally use its purchasing power to support local production of goods and services as per EDD’s dictates? In my view, the fact that only P17.2 billion or 53 percent of the total cumulative amount of P32.5 billion worth of goods and services purchased by Government since the inception of the programme, was from local manufacturers and service providers leaves a lot to be desired. There is no reason why we should not have scored at least 80 percent in this area.

The only reason why such a noble economic diversification tool as the EDD has not been adequately leveraged on is that the award of tenders to local manufacturers and service providers was hampered by either inefficiency or corruption or both. When the Special Economic Zones (SEZ) policy was adopted in 2011 many had hope that it would bring a bumper harvest in as far as economic diversification is concerned. Indeed, it was Government’s hope that the SEZ would contribute to the diversification of the economic and export base of the country.

Yet, in Honourable Matambo’s own admission, to date, about nine years since the SEZ policy was adopted, the only thing we have done is to identify the Special Economic Zones. Other than that, the only thing the minister could report to the nation is that the Special Economic Zones will be developed in two Phases. If this is not inefficiency, I do not know what inefficiency is.Government has, as another initiative aimed at promoting economic diversification, the Cluster Development Initiative (CDI) which, as Honourable Matambo asserts, is aimed at improving business productivity, value chains and competitiveness.

But, just like with the SEZ we have not gone beyond prioritisation. According to Honourable Matambo, preparatory work is underway to develop business case studies and implementation plans for the first three clusters selected for implementation, namely; tourism, beef and finance and knowledge intensive business services. We are yet to do something as basic as conducting detailed studies which, according to Honourable Matambo, will include the assessment of capacity building needs for the identified sectors as part of measures to enhance their domestic and global competitiveness.

As a result of Government’s failure to implement the CDI, Small, Medium and Micro Enterprises (SMMEs) with potential to grow this economy, lack the capacity to effectively compete with multinational and regional industries. The noble plans that Government had to assist SMMEs with such infrastructural intervention as power distribution, water reticulation, telecommunication and drainage and pollution control have remained a pipe dream.

The same applies to the plan to set up common facility centres for balancing or improving production lines such as marketing centres. How then can the private sector, which is critical for economic diversification, grow? Without a vibrant private sector, how can there be employment creation? No wonder our unemployment rate is as high as 20%. Without employment creation, how can there be poverty eradication?

In view of the aforegoing, one can conclude that Botswana’s failure to diversify its economy away from diamonds is not because it has no viable plans to do so, but it is because of either inefficiency or corruption or both. Botswana missed an opportunity to diversify its economy when it used the Economic Stimulus Package (ESP) for populist and unsustainable projects for political expediency. These projects hardly had any impact on economic growth and diversification since they were mainly sustenance based.



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