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Transformation from the Mid-income to High Income Status

Publishing Date : 30 October, 2018

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Vision 2036 seeks to transform Botswana from a mid-income to a high-income country by the Year 2036. The country finds itself trapped in the Middle-Income status, attained in the 1990’s before many African countries could achieve the feat. “The transition to high-income status requires us to introspect and be bold in charting our way forward. We need to put in place conditions that will allow dynamic transformation” (Vision 2036, p11).

The transformation to high-income status will be anchored on the transition from a resource to a knowledge-based economy. According to the World Bank, ‘knowledge economies’ are defined by institutional structures that provide incentives for entrepreneurship and the use of knowledge; skilled labour availability and good education systems; ICT infrastructure and access; and finally, a vibrant innovation landscape that includes academia, the private sector and civil society.

Botswana has laid out plans for transformation to a knowledge economy, i.e. in providing for good education systems, the country has developed the Education and Training Sector Strategic Plan (ETSSP), and is also finalising the National Human Resource Development Plan. On ICT infrastructure, Botswana Communications Regulatory Authority (BOCRA) and Botswana Fibre Network (BofINET) have since been established to champion same ICT infrastructure and access.

On the innovation landscape, the Botswana Innovation Hub (BIH), Botswana Institute for Technology, Research and Innovation (BITRI), Botswana International University of Science and Technology (BIUST), etc. have been set up to champion the transformation. All these should be looked at within the context and the centrality of their contribution to the high-income status.

The transformation to a high-income status entails accurately putting together pieces of a jigsaw puzzle, namely Infrastructure, Doing Business and Competitiveness, Human Capital, ICT Infrastructure and access, etc. Infrastructural development alone without the complement of Doing Business and Competitiveness support will not produce the desired results, nor will Infrastructural Development and Infrastructure lead to the desired results without the backing and support of thriving Human Capital.

Whilst human capital, driven by knowledge is key in raising the returns on investment, by stimulating more efficient methods of production organisation and as well stimulating new and improved products and services, human capital alone without the intrinsic support of others will not lead to the desired outcome of transformation from mid-income to high-income. ICT comes in as a bedrock and foundation as the world transits to the 4th Industrial Revolution.

We must therefore, as a matter of urgency take deliberate steps to overhaul the current economic growth model as highlighted in Vision 2036. The economic growth model is not in harmony with the radical economic transformation intended in Vision 2036. The growth model served the country well against adverse effects of the global economic downturn. Despite the stability, and modest growth, the model comes with a baggage, i.e. high unemployment rate especially amongst the youth, low productivity, unsustainably high public spending, etc.

There is however optimism, with His Excellency the President Dr MEK Masisi taking the button against the backdrop of a relatively strong performance in a number of areas. The Country has maintained high overall rankings in Africa i.e. 3rd in sub-Saharan Africa on the UNDP Human Development Index, 3rd overall out of 54 African countries, in the 2017 Ibrahim Index of African Governance (IIAG) with a score of 72.7 etc. Furthermore Botswana has experienced the doubling of per capita gross national income to US$ 7 058 in 2014.

HE the President Dr MEK Masisi is on a renewed path to attract Foreign Direct Investment, pushing to the limit the reform agenda aimed at facilitating and motivating investors’ passion into doing business in Botswana. This past week, HE the President attended the World Investment Forum 2018 hosted by United Nations Conference on Trade and Development, seeking to promote Botswana as an investment destination. 

Whilst in Geneva, HE Dr MEK Masisi met with the Secretary General of WIPO, as well  with the Geneva Chamber of Commerce. He also held meetings with Mr Michael Reybier, owner of La Reserve Hotel to discuss among others, interest of the Reybier Group in the hospitality business in Botswana. The President also attended the Botswana Tourism, Investment and Cultural night, once more sending a clear message that attracting FDI remains one of his key priorities. This drive by HE will positively “grow Botswana’s population” as empirical evidence tells us that the population size is a key determinant of FDI inflows.

Marija Petrović-Ranđelović, Vesna Janković-Milić, Ivana Kostadinović  of the University of Niš, Faculty of Economics, Serbia undertook studies to examine the impact of foreign direct investment inflows in the Western Balkans countries in the period 2007-2015. Their results show that the highest relative impact on the foreign direct investment inflows was recorded for variable population size (beta coefficient is 0.569); whereas, statistically significant impact on the foreign direct investment inflows was recorded for market size and market growth (significance ˂0,001 and ˂0,015, respectively). These studies tell us that with a population of a little over 2 million, Botswana finds itself at crossroads, in a bid to attract FDI inflows.

But it is not all doom and gloom because other Countries with the population size less than, equal to and slightly more than Botswana have done it. The fundamental is to learn how they achieved the feat and adapt to our circumstances. This is not in any way suggestive that we should swallow the ‘hook, line and sinker’ in our learning journey.  

In our learning journey, Journalist and author Daniel Brook, tells us that “96 percent of Dubai’s population is ‘foreign born’, Dubai makes even New York City’s diversity — 37 percent of New Yorkers are immigrants — seem mundane. As a pair of American observers put it, Dubai is a city where “everyone and everything in it — its luxuries, laborers, architects, accents, even its aspirations — was flown in from someplace else.” 

Daniel Brook characterises the growth as orchestrated in the following manner: “that in 1974, Sheikh Rashid tasked the young Mohammed with overseeing the growth of Dubai International Airport. In the 1980s, Mohammed tapped British Airways veteran Maurice Flanagan to launch Emirates airline, which would become an archetype of the Dubai model: A state-owned company managed by Western experts that would thrive in open international competition”.

He goes on: “By 1990, Emirates was flying to major hubs like London, Frankfurt and Singapore, taking advantage of the fact that most of the world’s population lives within a reasonable flying time of the city-state. As Emirates grew, it became a kind of octopus, grabbing ever more far-flung parts of the world and drawing them to Dubai. Lured by the prospect of tax-free salaries, some of the international businessmen who visited, stayed”.

“In 2002, Mohammed issued a land reform decree allowing foreigners to own real estate in Dubai — a first in any Gulf state. Before the reforms, Dubai had no real estate market. Land was given out under a quasi-feudal system; all land was held by the sheikhs or by favored Emirati friends upon whom the sheikhs had bestowed parcels. Everyone else — including every foreigner — was a renter. With the 2002 reform, anyone could buy a home in Dubai”.

We can thus draw a no of lessons to assist us in our endeavour to drive towards high-income. The first lesson is that population increase can be attained by bringing in the ‘foreign born’ as 96% of Dubai population is the ‘foreign born’.  Through radical mind-set transformation, we need to acknowledge this reality which would in turn assist us in meeting the challenges associated with population size (the highest relative impact on the foreign direct investment inflows was recorded for variable population size (beta coefficient is 0.569).

Attracting FDI means Investors should be able to land in the country with relative ease, hence the necessity to introduce ‘Emirates Airline’ equivalent. As a priority, we need to, significantly revamp our air-transportation, both the Airline and the Airport. We could take a leaf from the Dubai model: “A state-owned company managed by Western experts that would thrive in open international competition”. This model of outsourcing the National Airline and building of the Iconic ‘International Airport’, (a design that is ‘ground breaking’ and one that sets new standards) will ensure that the Country reduces the unsustainably high public spending. The said Iconic International Airport will furthermore critically power one of the key priority areas for growing the economy, being the Tourism Sector. 

The other lesson is that we should reform our tax system.  As highlighted, in the Dubai experience, their ‘foreign born’ were lured by the prospect of tax-free salaries. The need for Land Reform is also one of the critical lessons to learn, as land pushes estate development, including the drive for Mega and outstanding iconic structures. Notwithstanding, we have had tax reforms as well as land reforms, but the impact of such in the transformation agenda to high income status has not paid much dividends. There is therefore need for radical approaches on the said, beyond what currently obtains. All entities, Public, Parastatals, the Private Sector etc. must see themselves as a part of the greater jigsaw puzzle.

HRDC’s contribution amongst others in this jigsaw puzzle, is through the development and operationalisation of National Labour Market Observatory and Information Management System that will be a one-stop-shop for employment/unemployment trends, rate of skill-job vacancy mismatches, educational attainment, as well as sector-employment-intensity, among others, to facilitate both local and foreign investors to determine availability of relevant skills. HRDC is also working with Local institutions and Industry to develop market responsive and internationally competitive programmes.

In conclusion, the views expressed in the Vision 2036 Preamble says it all: “We must take deliberate steps to overhaul the current economic growth model, moving away from resource-driven growth, to growth based on high productivity, innovation and competitiveness”. Business as usual is no longer an option. 

Dr Raphael Dingalo is CEO, HRDC



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