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Dr Matsheka’s Ministry proposes new Direction

Publishing Date : 02 December, 2019

Author : GOITSEONE SEVEN

“The Mid-Term Review (MTR) of National Development Plan 11 (NDP 11) comes at a critical juncture in the Botswana’s development. The momentum that has carried the country forward following many years of diamond-led growth is now slowing down on the backdrop of challenges in the global economic environment”, reads Mid-Term Review of the National Development Plan 11 Draft prepared by the Ministry Of Finance and Economic Development.


The Minister of Finance and Economic Development, Dr Thapelo Matsheka and his new permanent secretary Dr Wilfred Mandlebe are poised to give the country a new direction to deal with the challenges identified. According to the draft it is widely acknowledged that national social and economic transformation is necessary. “To this end, this MTR has come at an ideal time as it has assisted in identifying and analysing critical issues that need to be addressed, in order to transform Botswana’s economic and social development path going forward.”


NDP 11 is the first of three NDPs that will cover the Vision 2036 period, and hence the draft suggests that it is crucial in setting the growth and development path to be followed through to 2036, and achieving the Vision’s varied objectives for improving social and economic well-being in a sustainable manner.


“It also comes at a time when the world has embarked upon the 2030 Agenda for Sustainable Development, with its associated Sustainable Development Goals (SDGs). This MTR is therefore anchored on refining the course set out at the beginning of NDP 11 which was crafted along the pillars of Vision 2036 as well as the SDGs deliverables.”


According to the Ministry of Finance officials Botswana’s main challenge is that of subdued economic growth mainly as a result of impaired global demand for diamonds as its major export commodity. Recent average annual GDP growth rates measured over five-year periods have been around four (4) percent, far below the double-digit growth rates that Botswana enjoyed during the era of rapid diamond-led growth in the first 25 years after independence.


The draft review states that in order to sustain the growth momentum, government spending was increased even as diamond-led growth slowed down. “Such expenditure, was necessary to enhance transforming Botswana’s growth model to one driven by diversified, and export-led goods and services. Such a transformation is essential in unlocking the country’s growth potential while at the same time creating sustainable jobs. Linked to this, is the current shift in Government emphasis towards a knowledge-based economy that encompasses the production of many types of goods and services that can potentially support export-led growth.”


Finance officials posit that the transformation agenda needed to achieve faster economic growth requires that all sectors of the economy actively participate in economic activities. In so doing, it is important that emphasis be put on implementation efficiency and effectiveness.
“This applies to both the choice and implementation of projects, and to operational aspects of public sector service delivery.


Public spending has been high in Botswana over many years, and while there have been some important achievements as a result, there has also been examples of not achieving value for money. Hence, structural changes in the economy associated with the move away from diamond-led growth means that the public sector will be expected to “do more with less”.”

Private sector must come to the party

There are also obligations on the private sector to deliver more and better. In many respects Botswana’s private sector is far too dependent upon government, notes the draft MTR. “It is up to the private sector to demonstrate more initiative, especially with regard to competitiveness and productivity that can underpin a pivot towards export markets rather than mainly servicing domestic demand. This requires a refocusing of domestic investment as well as attracting much higher levels of inward foreign direct investment.”


The MTR comes at a time when expectations amongst Batswana are high. “This is because the country has just successfully had a peaceful general election, and the 12th Parliament is convening with many new Members. In the road to the elections commitments to effective and impactful delivery were made, and it is essential that results are achieved that have a positive and widespread impact on the lives of Batswana. It is also essential that actions are taken that will, on balance, contribute to advancing the overall national transformation and socio-economic development in the longer term.”


The draft further narrates that currently the challenge of transformation is made more difficult by the external environment that in many respects has higher levels of uncertainty than at any time since the global financial crisis and recession a decade ago. Since that time, global growth has been volatile and

The need for Transformation

“The period of mineral-led growth that transformed Botswana from a low-income to an upper-middle income economy is now facing challenges. However, the search for a new, sustainable growth model continues. While the economy has become more diversified over the past two decades, this has not yet reached sustainable diversification levels. The economy is currently characterised by low annual growth rates and not enough opportunities for employment and income-generation for citizens are being created.


The economy also remains too dependent on government spending, and limited foreign direct investment (FDI), that yields a narrow export portfolio. Hence, the transformation to a sustainable post-mineral growth pattern remains a priority in the medium to long-term,” reads the MTR draft.


The draft notes that while the exact nature of sustainable post-mineral growth will evolve over time, a number of pre-requisites and desirable characteristics can be identified for the objectives of higher, more labour-intensive growth to be realised. These include:  Increased openness and greater integration with regional and international markets for goods, services, labour and capital; Improved productivity and efficiency, leading to greater effectiveness and competitiveness; Shifting the drivers of growth towards exports of goods and services, and away from dependence on government and the small domestic market; Making use of Botswana’s high level of investment in education to support the transition to a knowledge-based economy; Improving economic opportunities for citizens; Reversing the decline in inflows FDI; and Improving the business environment to encourage diversified investment portfolios.


The Changing World of Diamonds

“Diamonds have long been central to Botswana’s economy as the largest contributor to; GDP, export earnings and government revenues. However, Botswana is now a mature diamond producer – having been doing so for almost 50 years – which means that diamonds are no longer a major driver of growth, although they continue to play an essential role in providing the foundation for the economy, government spending and the balance of payments. Domestically, the maturing of diamond mining poses challenges in that production is at a plateau, rather than growing, while costs of production are increasing as mines get older and deeper.


The global context for diamond mining is also changing dramatically. Since the global financial crisis (GFC) and recession of 2008-9, diamond prices have been volatile, and on a general downward trend, in contrast to the historical experience whereby diamond prices were expected to trend upwards. The relationship between rough and polished diamond prices has also changed, leading to squeezed margins and instability amongst mid-stream participants (diamond traders, cutters and polishers).


Other key changes involve the availability of finance, and the nature of the consumer and consumer tastes. Perhaps most significantly, the entry of low-cost lab-grown diamonds (LGDs) has transformed the supply-side, and undermined the rarity of (natural) diamonds. Finally, automation and artificial intelligence is affecting all stages of the diamond value chain, covering mining, extraction, sorting, valuing, and cutting and polishing. The diamond industry is going through a period of unprecedented change and disruption, which Botswana has to deal with, states the MTR draft.

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