Gaborone - The African Development Bank (AFDB) has found that Botswana is at a critical juncture in its economic development.
In a new report titled Country Strategy Paper, the continental bank stated that the global financial crisis of 2009 exposed the country’s vulnerability to external shocks due to its reliance on one commodity.
“Real Gross Domestic Product contracted by 7.8 percent from an annual average growth of 10 percent experienced over the previous four decades. In addition, Botswana's economy will face a difficult challenge in the medium term with the depletion of its diamond resources. This has led to a rethinking of the country’s development strategy,” the report said.
According to the report, Botswana needs to accelerate economic transformation from the primary sector to advanced manufacturing and services in order to reduce its vulnerability to shocks in the diamond trade.
“The country needs to revive the growth of private sector investments and increase the productivity of economic investments,” the report noted.
To achieve this, the report says, government needs to invest in high impact infrastructure to improve competitiveness, provide a sound regulatory environment that is friendly to business, and further enhance skills development.
The bank’s concerns are not unfounded.
Presenting the 2019/2020 Budget speech early this year, Minister of Finance and Economic Development, Kenneth Matambo, admitted that Botswana still faces significant development challenges.
These, he said, include sustaining positive economic growth rates, reducing unemployment and eradicating abject poverty, despite its developmental achievements over the past years. Therefore, Matambo said with such challenges the focus of this year’s budget would be on consolidating development gains for further economic transformation.
The AFDB said in its report that it would support Botswana’s efforts to enhance private sector orientation so as to achieve higher sustained and equitable growth.
“Infrastructure projects supporting productivity can provide opportunities for Botswana’s private sector development. This will be complemented by promoting private sector participation in public service provision through public-private partnerships (PPPs), and enabling policy and regulatory reforms,” the bank said.
It stated that it would also emphasize knowledge solutions to inform policy formulation. While the proposed areas of engagement cannot support all of the government’s development objectives, the interventions will have a catalytic impact and a clear demonstration of the bank’s value-added engagement, the bank said.
As an upper middle-income country, Botswana’s borrowing preferences change depending on the available fiscal space. As a result, the bank would be flexible and responsive to the country’s changing needs for lending and advisory services. The bank would also develop a rolling three- year pipeline of potential operations with confirmation done on an annual basis.
“This will be followed by the development of annual operations business plans aligned to the government’s financing priorities. The bank will creatively use its range of financial products, in addition to PPPs, to implement the Country Strategy Paper. It will continue to coordinate closely with development partners to improve development effectiveness and enhance operational collaboration,” it said.
The bank noted that Botswana had made huge strides in socio-economic development over the past four decades, transforming itself from an underdeveloped country into a middle-income country.
“However, a striking feature of the Botswana economy is the rather limited economic transformation. The structure of production has changed very little since the 1990s. Minerals still dominate the economy while labour-intensive manufacturing, which normally absorbs unskilled labourers who exit traditional agriculture, has not developed. As a result, the economy has high levels of unemployment and inequality,” the bank said.
“The 2009 global economic downturn exposed the country’s vulnerability to external shocks due to reliance on one commodity. Gross Domestic Product (GDP) contracted by 7.8 percent from an annual average of 10 percent over the previous four decades. At the same time, growth in the non-mining sector softened.”
To reduce unemployment and inequality, the report said, the country will need to accelerate growth of private sector investments and increase the productivity of economic investments.
The Country Strategy Paper (CSP), which is anchored on the bank’s Ten Year Strategy (TYS) covering the period 2013-2022, responds to the need to transform the Botswana economy in accordance with its national development agenda outlined in the government’s 10th National Development Plan (NDP10) covering the period 2009-2016.