More Es for Economic Diversification

For decades the government of Botswana together with the private sector has been talking economic diversification. Numerous policies and strategies have been established towards this goal. The 2009 economic crises illuminated the fiscal issues, declining revenues which are a medium term phenomenon. Government revenues and Botswana’s GDP has been dominated by mining particularly diamonds, however,  mineral revenues contribution to GDP has over the years declined from highs of 40% to the current 27%.

In the pursuit of economic diversification, government has introduced some programs at various times such as Financial assistance policy (FAP), ALDEP, youth grants, manufacturing incentives, etc. Still with this massive investment towards this goal we haven’t been able to witness progress and the real benefits of economic diversification. Sound economic diversification shouldn’t only have high level macroeconomic results but should be felt on the ground by the layman through growth in economic opportunities particularly growth in employment opportunities, growing middle class and lowering disparities between the poor and the rich.

Some of the issues that keep coming up when discussing economic diversification are growth in the local private sector and Batswana participation.  Citizen Economic Empowerment (CEE) is widely accepted as an essential component of economic development and diversification and lately the CEE policy has been said to be tightly intertwined to the Economic Diversification Drive (EDD). We are yet again pushing for introduction of new policies and strategies without necessarily having properly evaluated the previously failed, the unimplemented and the ‘still in progress’ policies. What is it that CEE is going to introduce that FDP or ALDEP or LIMID didn’t do? Most of the programs before have always been citizen empowerment focused, for companies to benefit from CEDA loans for example need a Motswana majority shareholder. Question of-course is, since we have always supported Batswana owned enterprises and we haven’t seen any fantastic results aren’t we wasting our efforts on the wrong course? Should we perhaps follow EDD which talks to local enterprises which basically means for as long as an enterprise is based in Botswana it’s eligible for incentives such as access to finance? Is moving forward with CEE further fuelling the sense of entitlement that most of us feel is the down fall of Batswana? During one of my interviews on DumaFm, I was asked what I think of EDD and as honestly as possible, risk isn’t on how it looks on paper but largely on how it’s going to be implemented. I’m quite wary on promoting sub-standard quality goods, uncompetitive pricey goods through the government market. In the short term EDD is supposed to serve as infant industry protection which will in the long term produce internationally competitive enterprises.

We need to start looking at “empowerment through excellence”; pursued in a way that is consistent with participation in a global economy that requires openness to trade, capital flows and migration. We live in a global village and we need to start acting and working the part. How relevant are our policies and strategies in this competitive world, for sound economic growth and diversification we need to start thinking outside the box and looking outside the border; have an export led economy and attractive enough for FDI.

The Return of the Great

2011 was a very confusing year; excellent diamond sales in the first half of the year followed by a big slump in the second half, USA battled with debt ceiling, the Euro zone countries faced larger problems of defaulting, the jasmine revolution in North Africa and the Middle East, a tsunami in Japan, all these resulting in volatility in commodity prices, disruptions to supply chains and general uncertainty has impacted businesses across the globe, slowing the recovery in both mature and emerging markets.  Over the year, fears of a double dip recession got stronger and seemed on the brink of the 1930s calamity, the question now is, will we see the return of the great depression in 2012?

Earlier this year at the FNBB budget dinner, colleagues brushed off fears of a double dip recession. There have been signs that the ‘apocalypse’ may not be eminent after all, In Europe things are looking promising; the first sovereign default in a developed economy has passed off without a problem though not easy; Greece is restructuring its debt. In America firms are hiring more and consumers are spending more. Industrial output jumped in January after surging in December by the most in five years, auto sales are booming. Consumer confidence has reached its highest point in a year and even the housing market is showing signs of turning around.

In Botswana we remain very wary, diamond prices are uncertain; mostly leaning towards a decline. Copper prices and other metals prices are expected to rise and then remain steady in 2012. Government budget has reached surplus after 3 years of deficit and there hasn’t been much reduction to government spending to affect the domestic market drastically. There are estimations for lower inflation in the second half of the year.

But is this a call for us to done our blue, black, white and bring on a Zebras win cheer type celebration? Definitely not, the worst might be averted but we still expect slow economic growth in 2012. Oil prices are not expected to fall anytime soon, rather we expect a rise in local fuel prices, though they are not at the historic high prices of 2008, they remain high enough to worry.

As the IMF and World Bank have stated, European countries need to stop focusing so intently on austerity and instead do more to generate growth. Collective action can help set the global economy on a more robust growth trajectory by fostering global demand rebalancing; however, the greatest challenge for the global economy in this slow growth environment is to raise productivity without losing job opportunities for the millions who are looking for reasonably paid jobs to support their living standards.