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ADB: Botswana’s growth not inclusive!

Publishing Date : 12 August, 2019

Author : TLHABO KGOSIEMANG

African Development Bank’s latest report indicates that despite Botswana’s impressive economic performance; growth has not been inclusive. In particular, the high unemployment and inequality if unattended, has the potential of creating social unrest.


To ensure inclusive growth, Botswana needs to address its two main challenges which are limited economic growth diversification and inadequate infrastructure. Limited economic diversification has led to an increased dominance of government in economic activities which is constraining private sector participation.


Low private sector investment inhibits the progress of economic diversification, and in turn hinders overall manufacturing productivity, creating a vicious cycle of headwinds to growth. Public sector dominance has distorted the labor market and softened growth of the private sector. Large flows of diamonds revenues allow government to be the largest and a generous employer thereby inadvertently influencing the worker’s preference for the limited job opportunities in the government. This has created skills shortages in the private sector and also increased the reservation wage resulting in higher cost of production and low productivity.


The large public sector has become a growing source of inefficiency, weak competitiveness, and a constraint to private enterprise development. The special privileges extended to state-owned enterprises make it more difficult for the private sector, large enterprises and SMEs alike, to participate in certain key areas of the economy, thus inhibiting competition and associated gains in productivity and efficiency. Reforms are needed to remove inefficiencies, and promote productivity of the state-owned enterprises. In addition, Botswana needs to improve the business environment to become more competitive particularly with respect to South Africa.


Capacity constraints and skills shortages have been persistent despite significant public investments in educational facilities. The situation is further aggravated by the high incidence of HIV and AIDS. The shortage of skilled workers has hindered knowledge transfer and innovation. A sustained investment in human capital will ensure that long-term growth is more firmly based, as well as more inclusive, and will grow the importance as the economy diversifies and climbs up the value chain of both the manufacturing and the service sectors.


The report further indicated that the quality of some components of basic infrastructure at present is lagging behind many of Botswana’s peers. A concerted effort to improve the quality of infrastructure holds the key to transforming the economy and sustaining high growth.
Electricity supply in Botswana is inadequate and unreliable, with the available capacity of 322 megawatts falling far short of its demand of about 580 megawatts, which in the past has been partly met through imports.


The stabilization of Morupule B power station, with a potential output of 600 megawatts, is expected to ease the situation in the short term. In the medium to long term, it is envisaged that new generating capacity, Morupule C 2 X 150 megawatts brownfield project and another 2 X megawatts greenfield project, will be developed by the private sector under the framework of independent power producers. Low tariffs could pose constraints to attracting private sector participation in the electricity subsector.


Electricity tariffs need to be adjusted to improve the viability of the sector. It is also important to establish the legal and regulatory framework that is conducive to private sector participation, including a regulatory agency with adequate authority and capacity to regulate the sector.
While Botswana’s internal transport infrastructure network is considered adequate, its landlocked status and vast terrain significantly increases trading costs.


The provision of reliable transport services between the main population and production centers, and to neighboring countries remains one of government’s top priorities in order to encourage foreign investments in key sectors of the economy, such as mining, construction, manufacturing and tourism. For example, the exportation of coal will require a rail network to the posts. A well- developed transport system would assist this land-locked country to position itself gainfully so that it becomes a preferred transit route.


On the ICT sector, Botswana has very high mobile penetration rates, but internet access and fixed broadband subscription is low for a middle income country. Historically, Botswana has depended on satellites for its international bandwidth, and on other countries to transit capacity to landing points of international submarine fiber-optic cable systems. The virtual monopoly of the Botswana Telecommunications Corporation has resulted in high wholesale costs.


The landing additional cables in the region in 2011 and 2012 has improved the competitiveness in this regard. Transformation of the economy to advanced manufacturing and services will require faster and affordable broadband. To address this, the government is in the process of finalizing the national broadband strategy to roll out a high- speed and reliable network.


Water shortage remains a challenge. Botswana is a drought-prone country and suffers from water shortages especially in the southern part of the country, which makes food security challenging. Over 60% of domestic food demand is met through imports, underscoring the need for increased investment in irrigation infrastructure. The increasing rate of urbanization has also put significant pressure on its water resources for human consumption and industrial use. Inadequate and irregular water supply also constrains the growth of the manufacturing sector. To address the inefficiencies and long term sustainability of the sector, implementation of the water reform programme is ongoing.


The CDB report further highlighted that Botswana is not an aid dependent country, but has used the little ODA it receives effectively in support of development. When Botswana graduated to middle income country status, several development partners scaled down their activities. Despite this, Botswana has made significant progress in aid coordination and harmonization. The government launched the Development Partners Coordination Forum in September 2007, which meets twice a year.


The Forum comprises of government representatives, heads of diplomatic missions and bilateral and multilateral organizations including the Bank which always participates in scheduled meetings, benefiting from the proximity of the Bank’s Southern Africa Resource Center to the country. The Forum provides a two-way platform for information sharing on government policies, aid modalities and aid coordination in general. Nonetheless, the alignment and harmonization of donor support the low.


There are very few joint missions and analytical work, and routine sector working groups rarely meet. Consistent with the Paris Declaration and the Accra Agenda for Action, country systems for public financial management and procurement are continuously assessed and strengthened throughout Bank-funded operations.


It also indicated that the country benefits from support from a number of development partners, with European Union leading donor providing, among others forms of assistance, sector budget support to the education sector. The World Bank supports the public financial management reform process and energy generation, while the Bank’s focus is mainly on energy transmission and agricultural infrastructure. United Nations agencies spearhead capacity building initiatives while the United States leads support to the health sector, focusing on preventative measures on HIV and AIDS. Nonetheless, there are numerous donor supported operations, numbering about 140 in 2012.


However, the CDB has put down a strategy for Botswana. Botswana’s mineral-driven and public –sector led growth model provided four decades of strong performance but maintaining strong growth has been a challenge in recent years. In addition, growth has been less inclusive. The declining trend in growth may exacerbate Botswana’s already high income inequality and persistent unemployment. Tackling the high level of structural unemployment is important to improve the quality of economic growth.


Private sector led growth is essential if Botswana is to unleash its growth potential and sustain it. The will require a decisive reforms and innovative policies to reinvigorate productivity. Botswana is at a crossroad with the global downturn leading to a rethinking of the country’s development strategy. The MTR of the NDP10 recognizes that a new economic model is required.


Old policies need to be reviewed to make the case for an additional transformation to avoid a middle-income trap. The need to transform the country has long been recognized but the sense of urgency seems higher now than in the past. An ambitious agenda for new sources of economic growth and employment needs to be set.

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