Transcript The Botswana Development Model since 1966: Evaluation of

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
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

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
50
40
30
20
10
Index of Diversification
Mining share of GDP
60
0
1974/75
1978/79
1982/83
1986/87
1990/91
1994/95
1997
2001
2005
2009
2013
1974/75
1978/79
1982/83
1986/87
1990/91
1994/95
1997
2001
2005
2009
2013
Mining percent of GDP
Does mining dominate GDP?
No longer
Index of Diversification
90%
85%
80%
75%
70%
65%
60%
Changing Structure of GDP: Non-mining
GDP has changed from ag/mfg to services
Ag+Man/GDP
50
45
40
35
30
25
20
15
10
5
0
1974/75
1978/79
1982/83
1986/87
1990/91
1994/95
1997
2001
2005
2009
2013
45
40
35
30
25
20
15
10
5
0
1974/75
1978/79
1982/83
1986/87
1990/91
1994/95
1997
2001
2005
2009
2013
Percent
Ag+Man/GDP
Services (non-govt)
Services (Percent of GDP)
Agric + Manufacturing
Drivers of Growth
100%
14%
12%
80%

10%
60%
8%
40%
6%
4%
20%
2%
0%
0%
-2%
-20%
-4%
-40%
-6%
1974-84
Mining
Govt
1984-94
1994-04
2004-13
Ag, mfg & constr Services
Average growth

Mining no
longer
driving
growth
But growth
has been
declining
Fiscal Diversification

VAT
12%
Other
7%
Minerals
30%
Nonmineral
income tax
19%


SACU
32%
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
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
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

Other manufactures
Meat
Textiles
Soda ash/salt
Gold
Polished Diamonds
Rough Diamonds
Copper/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
Structure of Exports, 2013
Other
Meat
2% manufactures
8%
Textiles
1%
Soda
ash/salt
1%
Gold
1%
Polished
Diamonds
14%
Services
6%
Copper/nicke
l
9%

Exports (unlike
the economy)
has a small
contribution
from services
 Although
Rough
Diamonds
58%
data
on services
exports are
very poor
Export intensity of different economic
sectors

Services
Govt
Key
sustainability
problem

Constr., water & elec.

Manufacturing
Mining

Agriculture
0%
20%
NB manufacturing includes
polished diamonds
Exports
40%
60%
Share of total
VA
80%
Structure of
the economy
is shifting
Moving from
tradeables
(exports) to
nontradeables
(services)
Must promote
services
exports (and
better data)
Unemployment & Poverty
30


20
Census
HIES/CWIS
LFS
DS
MIS
BAIS
15
10
5
0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Percent of labour force
25
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!
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

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:
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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.