Can Botswana’s prosperity last? - African Business Magazine
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Can Botswana’s prosperity last?

Can Botswana’s prosperity last?

In Gaborone, Botswana’s peaceful capital rarely noted for its exuberant patriotic displays, an unexpected sight greets motorists on one of the city’s main thoroughfares.

For perhaps a mile, lampposts, pavements, and piles of rubble are daubed with the blue, black and white of the national flag, the work of state sanctioned graffiti artists for last September’s 50th anniversary independence celebrations. For a country rarely comfortable promoting itself, the anniversary offered a reminder that there is much to celebrate.

Since shaking off Britain’s colonial yoke in 1966, Botswana has marched into the ranks of upper-middle income countries, forged a stable political culture, and used the proceeds of its diamond industry to slash poverty. Yet while citizens look with relative satisfaction on half a century of development, the future looks less certain. As the crucial diamond mines yield fewer and fewer stones – estimates suggest reserves could run out by 2050 – the country is being forced to reassess its one-track growth model.

“Botswana is in an unusual situation because on the one hand here’s a country in an area where most countries are not doing well, and they are doing exceptionally well,” says Edahn Golan, a diamond industry analyst. “On the other hand, diamonds are a finite resource and at some point will end. Botswana has to take advantage of today’s opportunities to create new opportunities in the future.”

For policymakers, this quandary presents both a daunting challenge and a unique opportunity to shape the future. With minerals accounting for an estimated 40% of total revenues, the impending exhaustion of reserves is likely to leave a gaping hole at the heart of the economy.

It’s a vacuum that ministers are rushing to fill with a wave of policy proposals. From plans to position Botswana as a top safari destination, to bids to promote Gaborone as a diamond rival to Antwerp and an export hub of Southern Africa, ministers are rarely light on ambition.

Diversification strategy

“We are well on our way to diversifying the economy away from diamonds into other sectors like tourism, services and manufacturing,” says Biggie Ganda Butale, assistant minister for investment, trade and industry. “Our diversification strategy should be able to move Botswana from an upper middle to first world country.”

Tourism offers one way forward – the World Travel and Tourism council estimates that the sector’s total contribution to the economy could amount to over 10% by 2025. Yet with regional growth grinding to a halt – neighbouring South Africa slowed to just 0.2% in the third quarter – and an uneven policy environment within Botswana, a wider private sector led renaissance remains far from assured.

Take manufacturing, which remains a niche concern accounting for only around 6% of GDP, despite the attention of policymakers. Even with renewed government attention, the barriers to entrepreneurship remain formidable.

The country fell one place to 71st out of 190 in the World Bank’s Doing Business 2017 rankings, struggling badly in the areas of starting a business (153rd) and electricity (125th). Regional droughts, electricity and water shortages all hampered non-mining growth in 2016, according to the IMF, while the country had to import 39% of its electricity last year owing to problems commissioning the Morupule B coal-fired power plant.

The wider impact of this longstanding policy neglect is palpable. While the country has an enviable education sector, the result of some of the highest investment levels in Africa, thousands of skilled graduates emerge each year to a job market blighted by 20% unemployment.

For years, this situation was exacerbated by frosty relations between government and a private sector painfully aware of its limited importance. Yet as its role in Botswana’s diamond-free future becomes ever more important, businesses are speaking up.

“What is going to be necessary is the extent to which we are ready to allow FDI in the truest sense,” says Racious Moatshe, chief executive of lobby group Business Botswana. “As we speak we are a consumer nation. Exports are one area you can actually diversify the economy in. What we need from government is policy and a legislative framework that ushers in that atmosphere. Income tax and labour laws should be more flexible.”

Stimulus programme

There are increasing signs that the government is heeding the message. Earlier this year, President Ian Khama launched an Economic Stimulus Programme in a bid to boost non-diamond growth. The country is running up its first budget deficit in four years as it boosts spending on outdated water and power infrastructure and ploughs resources into business promotion agencies.

“We are working on a number of business reforms and we have set up a one-stop shop where investors can get visas, work permits and so on in one place. There are also issues with getting land to set up factories and offices and we are working on that, trying to be responsive to the demands and expectations of investors,” says minister Butale.

Yet opportunities to establish nascent industries are hampered by the poor regional outlook and fierce cross-border competition. Regional giant South Africa continues to dominate investment flows, even as its economy teeters on the brink of recession and it reduces imports from Botswana.

While South African businesses play a dominant role in Botswana, the net effect is not always positive. Few invest sustainably in local procurement or jobs, a situation that irks both business and government.

“I’m not saying everything should be procured from here, but at least 10%. You cannot run a business in an economy when you are not interested in developing it, because otherwise you will run out of business as you progress,” says Moatshe.

Attempting to create a business-friendly environment while insisting on local procurement is just one of the nettles that policymakers will have to grasp in the years ahead. Yet Butale insists that there is opportunity even in adversity. He argues that Botswana’s stable political situation, currency, and labour market – things that cannot be taken for granted in South Africa – could give the country a shot at attracting much-needed investment.

“All these advantages should lure investors to Botswana and I think we are seeing that happening. South Africa is a bit more aggressive in pursuit of FDI and retention of investments. We are not saying the Botswana story as loud and often as we should. We do blow our own trumpet, but not loud enough if you ask me.”

David Thomas

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Written by David Thomas

David Thomas is Digital Editor at IC Publications and a features writer at African Business Magazine. He has previously been published at the Financial Times, Wall Street Journal and South Africa's Cape Times.

  • Flatdog

    Adopt the economics of Milton Friedman, and Botswana will look back on these times as the poor years. Keynsian Economics causes serial crises, by constantly tinkering with something that wouldn’t be broke if it wasn’t for the constant tinkering.

    I would say to Mr Moatshe that you can’t improve your economy by issuing diktats to businesses – especially foreign ones. If businesses are not sourcing their inputs locally, find out why and try to correct the situation. Businesses never do things out of bloody mindedness, but for reasons of cost, availability and/or quality. It should more expensive for a company to import supplies rather than source them locally because of the cost of transport, and they don’t do it without good reason.

  • nicks40

    “Since shaking off Britain’s colonial yoke in 1966″… but Botswana is proud of never having been a colony. The Bechuanaland Protectorate was declared to stop the Boers colonising the area, but that was an entirely different thing.

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