the botswana development model since 1966: evaluation of diversification efforts. what worked? what...
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THE BOTSWANA DEVELOPMENT MODEL SINCE 1966: EVALUATION OF DIVERSIFICATION EFFORTS. WHAT WORKED? WHAT DIDN’T?
Keith Jefferis
BIDPA/UB/FES Conference
27th August, 2014
Diversification Policy
Diversification a long-standing policy objective
Initial dependence on cattle/beef From mid-1970s – dependence on minerals Concerns about
conventional mineral economy dependence, limited direct job creation etc.
Dutch Disease – squeezed non-mining tradeables sectors
post-mineral sources of growth
Measuring Diversification
No single, agreed definition. Focus on sustainability & living standards
Structure of GDP & sources of GDP growth – sectoral diversification – but more diversification may just reflect declining minerals
Fiscal diversification – sources of revenue Export diversification – balance of payments
sustainability Employment, living standards, poverty and
income distribution
Policies to promote diversification Macroeconomic policies
Exchange Rate Policy Monetary Policy Reserve accumulation Invest mineral revenues
Labour market policies Minimum wage Wage compression Immigration
Policies to promote diversification Early sectoral/subsidy schemes
FAP ARAP, ALDEP Industrial Development Policy (1984, 1998)
Institutions BDC, NDB TIPA
Parastatals WUC, BPC, BTC, BHC, BMC, BAMB
Later policies to promote diversification
Macroeconomic policies Exchange rate – largely unchanged Monetary – positive real interest rates
Institutional proliferation CEDA, BEDIA, IFSC, BITC, BNPC
Labour market Wage decompression Restrictive immigration policy
Industry Citizen economic empowerment, EDD
Does mining dominate GDP? No longer
1974
/75
1980
/81
1986
/87
1992
/9319
9720
0320
090
10
20
30
40
50
60
Min
ing
perc
en
t of
GD
P
1974
/75
1980
/81
1986
/87
1992
/9319
9720
0320
0960%
65%
70%
75%
80%
85%
90%
Ind
ex o
f D
ivers
ifica
tion
Mining share of GDP Index of Diversification
Changing Structure of GDP: Non-mining GDP has changed from ag/mfg to services
1974
/75
1980
/81
1986
/87
1992
/9319
9720
0320
090
10
20
30
40
Ag+Man/GDP
Ag+Man/GDP
Perc
en
t
1974
/75
1980
/81
1986
/87
1992
/9319
9720
0320
0905
101520253035404550
Serv
ices
(Perc
en
t of
GD
P)
Agric + Manufacturing Services (non-govt)
Drivers of Growth
1974-84 1984-94 1994-04 2004-13-40%
-20%
0%
20%
40%
60%
80%
100%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Mining Ag, mfg & constrServices GovtAverage growth
Mining no longer driving growth
But growth has been declining
Fiscal Diversification
Minerals30%
SACU32%
Non-min-eral in-
come tax19%
VAT12%
Other7%
Minerals no longer the largest source of fiscal revenues – so less dependence
But “domestic” revenues still relatively low
Government activities and popular expectations built around higher revenues than will be sustainable in future
Export Diversification
1996
1998
2000
2002
2004
2006
2008
2010
2012
0%10%20%30%40%50%60%70%80%90%
100%
Other manufacturesMeatTextilesSoda ash/saltGoldPolished DiamondsRough DiamondsCopper/nickel
Exports less dependent upon rough diamond exports than in the past But this is due to exports of polished diamonds (does this mean more
diversification?) Non-mining exports lower (as %) than any time in the last two decades
Export Diversification
Copper/nickel9%
Rough Di-amonds
58%Polished
Dia-monds14%
Gold1%
Soda ash/salt
1%
Textiles1%
Meat2%
Other manu-
factures8%
Services6%
Exports (unlike the economy) has a small contribution from services Although data
on services exports are very poor
Structure of Exports, 2013
Export intensity of different economic sectors
Agriculture
Mining
Manufacturing
Constr., water & elec.
Govt
Services
0% 10%
20%
30%
40%
50%
60%
70%
80%
Exports VA
Share of totalNB manufacturing in-cludes polished dia-monds
Key sustainability problem Structure of
the economy is shifting
Moving from tradeables (exports) to non-tradeables (services)
Must promote services exports (and better data)
Unemployment & Poverty
1991
1994
1997
2000
2003
2006
2009
0
5
10
15
20
25
30
CensusHIES/CWISLFSDSMISBAIS
Perc
en
t of
lab
ou
r fo
rce
Unemployment stubbornly high Rate of job
creation too low Poverty and
inequality very high by standards (upper MICs)
Have not yet achieved participatory growth
Future Challenges: Export or Die! GDP and government budget much less dependent on minerals
than 20 years ago Diversification – yes, but not sustainable diversification In many respects, the challenges remain the same as in the
early 1980s: Employment creation Developing non-mining exports Poverty alleviation and participatory growth
But the environment is now more challenging: Closer to the end of diamonds Expectations/dependence on government “Financial cushions’ (fx reserves & govt savings) being depleted Economy much more dependent on services – but we hardly export Many policies have been tried, but most have not succeeded Importance of exports and competitiveness not sufficiently
appreciated
The Key Diversification Challenge
Moving from an economy based on windfall income –
well managed, but unearned – to one where income and wealth are
based on competitiveness, efficiency and productivity.