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.