An Assessment of The Diversification-Growth Implications in Botswana and Emerging Policy Dynamics

Grace Tabengwa Johane Motsatsi

Conference 27-28th Aug 2014, Gaborone

STRUCTURE/OUTLINE OVERVIEW-CONTEXT, SCOPE, OBJECTIVES ANALYTICAL APPROACH ASSESSMENT KEY FINDINGS

DIVERSIFICATION-GROWTH IMPLICATIONS (i) Performance and Progress on Trade Expansion and a

Diversified Export Base (ii) Performance and Progress Towards a Diversified Growth

Base (iii) Foreign Direct Investment Performance (iv) Employment Generation vs Unemployment

CHALLENGES AND EMERGING POLICY ISSUES SUCCESS COUNTRY CASES

CONCLUSIONS AND RECOMMENDATIONS 2

OVERVIEW-CONTEXT, SCOPE, OBJECTIVES

Botswana's Growth Inter-Linkage with Mining Sector Performance make Diversification a Policy Priority

•

Source: Generated from Statistics Botswana, MFDP and IMF/WB Statistic

Main Policy Framework in the last 2-3 Decades, albeit subtle changes Encapsulated in National Development Planning Process (2-3 Decades)-NDP 9 major theme on diversification Recognised Major Government Commitment through Budget Resource Allocations Crystallized Botswana Excellence Strategy for Economic Diversification (2009) Economic Diversification Drive, Sector Strategies, Policy Initiative and Programmes: (FAP, CEDA, LEA, ISPAAD, NAMPAAD,

ARAP, ALDEP, Economic Empowerment, Trade Policy, Marketing and Branding Botswana, Export/FDI Incentives, Competitiveness Reforms,-Doing Business and Global Competiveness, HRDC)

National Vision 2016 Beneficiation, Diamond Trading Company Relocation Supportive Micro-Macro Policy Initiatives across sectors Ministries, parastatals, privates sector agencies, SMME Support,

Reforms for Business and Regulatory Frameworks

-10-8-6-4-202468

10 USA

Sub-Saharan Africa

Botswana GDP Growth vs Regional Performance

2001/02

2003/04

2005/06

2007/08

2009/10

2011/12

2013/14

2015/16

-25-20-15-10

-505

1015

Mining Sector Growth Performance and Forecasts (%)

Mining Sector Growth Forecats by the IMF

0

5

10

15

20

25

30

35

40

0100200300400500600700800900

1000

Diamond Production Volume and Real Profit

Production vol. (right) Real prof it per carat (lef t)

Prof

it(m

l. 20

00/0

1 Pu

la p

erct

.)

Prod

uctio

n vo

l.( m

l. of

ct.)

Assessment Focus… • Evaluate diversification policy focus versus performance against

the attainment of key national policy objectives as conceptualized in the context of Botswana.

Defining Diversification vs Overriding National Objectives for Diversification:A diversified export base, promoting non-mineral export.

expanding trade, expand revenue sourcesA diversified growth base-boosting non-mining sector growth

and sustenance. Attract FDI to other sectors of the non-mining economy to

support sustainable growth, enhance industry growthGenerate employment given its importance for inclusive growth

Setting Objectives• Utilise possible indicators for assessment based on the concept of diversification as

pursued in Botswana• Quantitative and Qualitative Assessment

(i) Performance and Progress on Trade Expansion and a Diversified Export Base

(ii) Performance and Progress Towards a Diversified Growth Base (iii) Foreign Direct Investment Performance (iv) Employment Generation vs Unemployment

• Recognised developmental achievements: High growth, HDI, Re-investment of mining revenues to create growth catapulting Botswana to MIC status-sound and strong policies and institutions.

• Impetus-Catalysation of Diversification and its Delivery…Policy Dialogue Today

? But what is the progress towards Diversification…… How are we doing? What can we do even better in fast tracking the diversification process towards Sustainable growth…

ASSESSMENT KEY FINDINGS

(i) Performance and Progress on Trade Expansion and a Diversified Export Base

(ia) Trade Profile: Some export activities emerging (services, textiles, vehicles) ; mining export dominance in total exports, volatility , direct impacts on growth performance via trade and revenue channels

• Still concerns with no major achievements towards as varied sustainable export profile• Growth implications: Trade Balance, Revenues, BOP, Foreign Exchange Reserves, Fiscal Strength-

Budget Position and Growth• Figure 1: Botswana’s Export Growth Performance (%) and the Export/Import Profile (Current, Pula Millions)

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

14000.0

Export and Import Profile

Total Exports Imports

2005 Q4

2006 Q4

2007 Q4

2008 Q4

2009 Q4

2010 Q4

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

14000.0Mining Exports in Total Exports

Total Exports

Diamond Exports

Copper/Nickel Exports

2005 Q4

2006 Q2

2006 Q4

2007 Q2

2007 Q4

2008 Q2

2008 Q4

2009 Q2

2009 Q4

2010 Q2

2010 Q4

-60

-40

-20

0

20

40

60

80

Total Export Growth (%)

Export Growth (%)

(ib) Non-Mining Exports – Positives emerging, sustenance concerns, filtration in major way to broaden export profile…not much has changed in terms of export diversity

Growth implications: via Trade and Revenue Channels-Trade Balance, Revenues, BOP, Foreign Exchange Reserves, Fiscal Strength-Budget Position and Growth

,

19961998

20002002

20042006

20082010

20120

5000

10000

15000

20000

25000

30000

35000

40000

45000

Indicators of Diversification- Non-Mining Export in Total Exports

Total ExportsPrincipal Mining ExportsPrincipal Non-Min-ing ExportsDiamond Exports

Copper/nickel9%

Rough Dia-

monds58%

Polished Di-amonds

14%

Gold1%

Soda ash/salt

1%

Textiles1%

Meat2%

Other manu-

factures8%

Services6%

2013 Export Composition Status

Source: Generated from Bank of Botswana Annual Reports, Statistics Botswana

(ic) Export composition: Botswana's non-diamond exports remain concentrated around five major commodities: copper-nickel matte, soda ash, meat, hides and skins, and textiles even two decades of policy initiatives seeking to boost export diversity.

• Slow and minimal filtration of export activities despite identified opportunities, enhanced marketing to-No major “new export activities …data for performance.•Positive achievements also noted with service exports•Sustenance Concerns of Performance- Textile exports-benefited from AGOA, Government support. Vehicle exports effected by closure of Botswana Motor Vehicle Company which relocated to RSA-

Table 1; Performance of other Major Exports (P Millions )

 Copper Nickel Beef

Soda Ash Textiles Vehicles Gold

2004 757.5 284.0 250.8 560.8 556.1 …2005 2 301.0 309.9 332.1 1 117.0 569.7 182.92006 3 822.8 363.2 462.7 916.7 183.6 206.32007 5 521.7 592.3 473.5 2 787.5 218.7 239.42008 5 923.6 530.3 505.2 1 819.3 413.6 382.42009 3 620.0 480.1 526.0 1 417.6 490.9 269.62010 4 152.8 868.8 506.4 1 118.5 275.3 460.52011 3 398.2 462.4 522.3 1 777.6 830.5 524.72012 3 393.5 522.9 644.6 614.3 989.9 618.42013 4 615.7 996.0 723.4 361.8 658.6 451.1

Source: Bank of Botswana Annual Report

(id)Revenue diversity- constrained by limited export diversity and trade profile. Positive Improvements, Challenges for Customs and excise-tariff liberalisation

Growth implications: Revenues key to pursue developmental objectives in NDPs, limited fiscal flexibility eg impact on NDP 10 and future planning process already , BOP, Foreign Exchange Reserves, Fiscal Strength-Budget Position and Growth

Table: Revenue Sources and Shares in Total (Percent)Customs & Excise Mineral

Non-Mineral Income

TaxExport Duties

Property Taxes

Vehicle Taxes

License Fees VAT

Airport Tax

2005/06 17.65 49.60 13.49 0.00 0.06 0.55 0.09 8.89 0.082006/07 24.13 47.87 11.21 0.00 0.06 0.51 0.08 8.20 0.032007/08 27.37 38.46 13.60 0.00 0.11 0.55 0.09 9.96 0.08

2008/09 25.45 33.43 15.13 0.01 0.08 0.63 0.09 14.37 0.07

2009/10 26.42 30.27 18.52 0.00 0.09 0.63 0.11 13.13 0.00

2010/11 19.45 37.79 20.10 0.01 0.11 0.72 0.10 14.53 0.00

2011/12 21.89 41.11 14.96 0.00 0.17 0.54 0.10 12.90 0.00

2012/13 34.13 28.99 16.14 0.01 0.12 0.54 0.07 12.68 0.00!

2013/14 31.08 30.11 20.37

2014/15 31.8 30.4 31.2Source: Statistics Botswana, MFDP

Customs & Excise

Mineral

Non-Mineral Income Tax

Export Duties

Property Taxes

Vehicle Taxes

License Fees

VAT

Airport Tax

0 5 10 15 20 25 30 35 40

34.13

28.99

16.14

0.01

0.12

0.54

0.07

12.68

0

2012/13 Share in Total Revenues Status

(ii) Performance and Progress Towards a Diversified Growth Base (iia) Non Mining Growth –Positive though still concerns with sustenance across other

sectors . Overall lower national growth rates in the era of diversification:Growth outcomes which remain determined by mining sector, lower growth at about 4.5-6%

range in 2011, 2012,2013, 2014 projectionsGrowth Implications-though positives emerging still questions sustainability , broad based

growth, targets attainment e.g 7.5%Mining, Non-Mining and Total GDP Performance (Constant Prices, Pula Millions and %)

Source: Compiled from Statistics Botswana, MFDP .

(iib) Sectoral Performance -non-mining sectors picking pace since the 1990s. Gov’t and mining still significant though share declining. Emerging Sectors albeit sustainability concerns for “Growth Drivers”Implications for growth: Though positives emerging..sustenance for broad based growth Figure 3: GDP Shares by Sector (Percentage)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0Mining

Agric

Manuf

Wat & Elec

Const

Trad Hot & Res

Trans & Comm

Bank Ins & Bus

Gen Gov

Soc & Per Ser

Source: Statistics Botswana

(iii) Foreign Direct Investment Performance

Region/economy 2005 2006 2007 2008 2009 2010 2011 2012

Africa 30

917.6 36 575.2 51 273.6 58 894.2 52 964.3 43 581.6 47 598.1 50 041.1

Southern Africa 6 701.4 1 334.4 8 117.4 13 921.3 10 128.7 2 047.5 8 722.1 5 399.8

Angola- 1

303.9 - 37.7 - 893.3 1 679.0 2 205.3 - 3 227.2- 3

023.8- 6

897.8

Botswana 278.6 486.4 494.6 520.9 128.8 - 6.1 413.6 292.5

Lesotho 70.3 59.9 106.5 111.9 99.9 113.7 132.1 172.3

Malawi 139.7 35.6 124.4 195.4 49.1 97.0 128.8 129.5

Mozambique 107.9 153.7 427.4 591.6 892.5 1 017.9 2 662.8 5 218.1

Namibia 348.0 386.6 733.0 720.3 522.1 793.0 816.0 357.5

South Africa 6

646.9 - 526.8 5 694.5 9 006.3 5 365.4 1 228.3 6 004.3 4 572.5

Swaziland - 45.9 121.0 37.5 105.7 65.7 135.6 93.2 89.6

Zambia 356.9 615.8 1 323.9 938.6 694.8 1 729.3 1 108.0 1 066.0

Zimbabwe 102.8 40.0 68.9 51.6 105.0 165.9 387.0 399.5

Table 6: FDI inflows, by Region and economy, 1990-2012 Millions of dollars

Source: UNTAD database

Sector Level FDI –Some positives noted albeit still minimal among “”Potential Growth Driver sectors-finance, retail,services..however, dominance of mining noticeableTable: Share in Total FDI Levels by Sector

Sectors 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012Mining 78.8 80.6 71.3 68.3 59.3 59.6 45.9 56.7 49.3 39.3 57.3 72.2Manufacturing 3.5 2.6 3.6 3.9 3.6 3.3 1.3 1.5 1.1 1.0 1.6 0.5Finance 6.3 7.0 10.2 11.4 22.1 29.0 48.2 35.2 40.4 40.5 27.5 22.4Retail and Wholesale 7.8 6.2 9.6 10.8 5.7 2.9 2.0 2.5 0.9 7.6 9.3 1.4Electricity, Gas & Water 0.0 0.0 0.2 0.4 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0Real Esrtate and Business Services1.6 1.1 1.3 1.2 2.2 2.1 0.6 2.0 6.9 6.2 1.7 0.9Transport, Storage & Communication1.1 0.9 2.0 2.0 3.2 2.2 1.3 0.7 0.5 0.1 0.1 0.7Construction 0.2 0.2 0.2 0.1 0.7 0.0 0.1 0.1 0.4 0.0 1.0 0.0Hospitality 0.8 1.3 1.6 2.0 1.4 0.5 0.3 0.5 0.4 0.1 0.3 0.0Public Administration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0 0.9 0.0 0.3 0.7 0.1 5.0 1.2 1.8Total FDI 100.0 100.0 100.0 100.2 100.0 99.6 100.0 100.0 100.0 100.0 100.0 100.0

72.19

0.48

22.40

1.430.950.720.001.83

Mining ManufacturingFinance Retail and WholesaleElectricity, Gas & Water Real Esrtate and

Business ServicesTransport, Storage & Communication

Construction

Hospitality Public AdministrationOther

19971999

20012003

20052007

20092012

0

5000

10000

15000

20000

25000

MiningTotal FDI

(iv) Employment Generation vs Unemployment

Gov’t major employer, mining without employment generation capacity despite being major sector. Limited pvt sector job market profile, Deceleration in absorptive capacity and employment creation, High unemployment…Implications for poverty, inequality , sustainable inclusivee growth..ultimately impacts overall growth and development achievements

Table 6: Estimated Number of Paid Employees by Sector and Economic Activity,( Percentage Share in yearly averages)1980 1985 1990 1995 2000 2005 2006 2007 2008 2009

Agriculture 2.8 1.9 1.6 1.0 1.2 1.0 1.0 1.0 1.0 0.8Mining & Quarrying 4.7 3.4 2.0 1.9 1.6 1.7 2.0 2.0 2.0 1.4Manufacturing 3.7 4.6 6.0 5.4 6.1 6.0 6.1 6.1 6.2 4.8Water & Electricity 1.0 0.9 0.5 0.6 0.6 0.4 0.5 0.5 0.5 0.4Construction 8.8 5.4 7.6 5.0 5.7 4.5 4.2 3.8 3.7 3.0Commerce 6.8 8.6 9.4 10.2 9.5 10.3 10.2 10.3 10.3 8.5Wholesale & Retail Trade 5.2 6.5 7.1 7.8 7.4 7.6 7.6 7.7 7.7 6.3Hotels & Restaurants 1.7 2.1 2.3 2.5 2.2 2.7 2.7 2.6 2.6 2.2Transport 2.2 2.7 2.1 2.0 2.0 2.3 2.3 2.2 2.1 1.7Finance & Business Services 2.8 3.2 3.5 4.0 3.7 4.0 4.1 4.4 4.3 3.6Finance 2.3 1.7 0.9 0.9 1.0 1.0 1.1 1.2 1.3 1.1Real Est.& Business Activities 0.6 1.5 2.6 3.1 2.7 3.0 3.0 3.1 3.0 2.5Education 0.9 0.9 0.5 0.8 1.3 1.4 1.5 1.6 1.6 1.3Health & Social/community Work 1.6 1.8 2.0 2.3 0.9 0.9 1.0 0.9 1.0 0.9Private & Parastatal 35.5 33.4 35.4 33.2 32.6 32.6 32.9 32.7 32.5 26.5Central Government 15.9 17.3 13.2 15.8 17.3 15.9 15.5 15.5 15.8 13.2Local Government 3.6 4.1 3.0 3.6 4.2 4.5 4.5 4.5 4.6 12.8Ipelegeng 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.0Total Employment 100 100 100 100 100 100 100 100 100 100

Formal sector employment increased from 315 791 in 2008 to 323 803 in 2009 and to 335 156 in 2011 yielding an average annual growth rate of 2.2 percent (Statistics Botswana). Unemployment rate decreased from 19.5 percent in 2008 to 17 percent in 2009 and then marginally increased to 17.8 percent i2009/10-Absorptive capacity shrinking, average annual employment growth declining and employment elasticities

Source: Siphambe (2007)

Summary Findings, Challenges and Policy Issues• Key Summary Findings

(i) Positives Emerging…Though still Limited Trade and Export Diversity: Positive turnaround for diversification though export and growth diversity still remains limited

(ii) Positives Emerging….Though Still Limited Growth Diversity for Sustainability Assurance: Overall rate of growth decelerating, non-mining growth though picking up remains below that required for sustainable growth

(iii) Emerging Positives…FDI Still Biased Towards Mining raising concerns for Non-Mining Industry Expansion Prospects : Largely biased towards miming and extractive industry

(iv) Decelerating Employment Generation and Absorptive Capacity Raising Concerns for Inclusive Growth and attaining “Prosperity for All”: Capacity to generate employment by private sector remains low while government capacity for labour absorption is decelerating

(v) Unemployment Dynamics-Rising Youth Unemployment: Unemployment rates quite high and is a major concern among the youth-future inter-generational success

In general..Assessments limited by adequacy of data to track diversification broadly at a more disaggregated level…at Sector /Industry level, More Importantly the Performance of Programmes, Strategies, Initiatives versus realisation of objectives.

Policy framework is to a large extent in place and the major challenge is turning diversification strategies into realisable results…time for turnaround to implementation (SEZs, NHRDC, Entrepreneurship/SMME, Pvt Sector Dev, Regulatory/Business Reforms

Recognised State of Transition….Outlook positive for diversification in the medium –long term horizon…Process takes effect since a lot is being done to set up and fill gaps/address challenges/ Some Strategies Unfolding, Reforms just commenced in some areas

Challenges that still prevail: impacting diversification process and its pace: Competitiveness….Sector Strategies, Doing Business Reforms, Global Competitiveness Reforms Requisite Infrastructure Requisite Human Capital …Sector Strategies, NHRDP Capacity for Institutions Monitoring and Evaluation-Sector, Industry…Coordinated Diversification indicators, Alignment of Policies to M and E Market opportunities, export and investment opportunities-their identification and exploitation

Success Country Lessons Botswana’s diversification policy approach lately integrates lessons from success countries Mauritius

EPZ and trade policy approach to develop export sector Botswana recent policy focus towards SEZ- Human capital development-Working on National Human Resource Development Plan-Sector Strategies to be

developed To great extent Botswana is setting its policy framework to diversify economic with lessons from success

South Africa-PPPs PPP policy for infrastructure development, Private Sector Role, thriving business environment….can Botswana

dra lessons South Africa IDZs, Botswana SEZ., lessons for policy approach for partnerships. some lessons for technological advancement

Chile Experience- Success on transformation, employment creation, diversification, addressing inequality,

Rwanda Made notable strides in competitiveness lately-issues for regulatory and business environment

More emphasis should be directed at capacities to turn strategies into results. Strategies and Policies are there…..how do we shift to the next stage is often the constaining factor Market challenges, export opportunities, FDI opportunities, Infrastructure, Competitiveness Capacities to Turn Strategies into realisable results, pace of Implementation Capacities to Identify Opportunities and Effectively harness their Potential Sector Specific Challenges- Supportive Research and Dynamism to Strategies

Conclusions and Recommendations Despite efforts to promote and develop export development programme and export promotion

there is limited progress towards a diversified export base and thriving export sector, the paper recommends

More focus on unlocking the realisation of the diversification process through capacities to identify export opportunities

Sector Specific Strategies…more rigour in sector strategies and their delivery, More work on Micro Policy to leverage Macro Policy to support sectors Strengthening Capacity of Institutions Need for institutional support and the requisite

capacity to ensure strategies for export development across sectors are turned into realisable diversification to deliver export industries.

• Enhance capacity for identification and promotion of exports and building their diversity with requite supportive national policies and regional opportunities in Southern Africa which remains a major weakness

• To expand exports, Botswana should take advantage of partnerships that can establish export processing zones and public/private sector partnerships export sector strategies for growth.

• This requires strong institutional frameworks supporting partnership dialogue on critical issues and impediments to trade/export development (e.g., customs valuation procedures, bureaucratic processing procedures, transport corridor inefficiencies, and lack of knowledge pertaining to export markets).

• Capacity for identification of export and investment opportunities and to shift strategies to realization of results of diversification initiatives.

• Trade Expansion and broadening export base: export processing zones to expand-potential export sectors such as manufacturing, services, tourism, textile, agriculture to broaden the export and industrial sector. –SEZs….

• Trade Facilitation and Capacity Development

• Regional Integration: Exploitation of trade agreements to broaden the export base even more urgently. An example is the case of AGOA to develop a sustainable textile sector. An extended and revised AGOA Taking advantage of regional integration to boost export and extra and intra-regional trade and developing requisite infrastructure such as for the water, energy and power generation

• Continued Strategic Interventions to address Competitiveness, Productivity and Efficiency, Doing Business, Regulatory Reforms and Supporting Private Sector Development

High factor productivity remains important to achieve a conducive environment for the Private sector , enhancing efficiency and productivity

The textile industry: AGOA has been the dominant driving force behind recent growth of the apparel sub-sector in a number of SSA countries, including Botswana. With prospects for AGOA renewal, the export sector should have capacity to exploit the trade preferences which is an area that requires focus since many developing countries lack capacity to fully exploit and take advantage of trade preferences.

• Critical to Hasten NHRDP and its effective Implementation: Human capital development and hastening the implementation of the NHRDP to address skills requisite to support the diversification and competitiveness reform process.

• Strategic investment Partnerships: where major investments are required the strategic partnerships should focus on infrastructure development, water, sustainable energy generation and power supply, health, education, agricultural sector, manufacturing beyond extractive sector, ICT to create an environment conducive for export and investment development..

• Strategic Inclusive Partnerships and Initiatives: to address existing social, economic and institutional development and capacity gaps. Capacity building of private sector, entrepreneurship, SMME development and key policy making and implementing institutions to enhance delivery on diversification.

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