The local economy has become more diversified in the past two decades, with the country now much less dependent on minerals than it was before. This is according to a quarterly economic review by economists, Keith Jefferis and his colleague Sethunya Sejoe of Econsult. In their review, the duo maintains that from a GDP point of view, evidence shows that the economy is much more diversified compared with three decades ago as in 2016 minerals accounted for 22 percent of the GDP, compared with over 50 percent in the late 1980s. The report makes an interesting synopsis as of late there have been calls to diversify the economy with government also coming up with a scheme to fast-track economic diversification by the introduction of the Economic Diversification Drive (EDD). The drive is meant to diversify national source of revenues away from minerals, in particular diamonds. However, the Econsult economic review for the second quarter of the year says the above figures point to a successful economic diversification. But this economic diversification is thought to have been accompanied by a slowdown in overall growth rates. This is because the average annual real GDP growth over the first 25 years after independence was 12.7 percent and in the second 25 years it averaged 4.6 percent. In terms of GDP, minerals account for a larger quota at 22 percent followed by trade at 20 with the third position held by financial and business services at 15 percent.
While the economy is said to be diversified as shown by the figures, the economists say exports have not while Foreign Direct Investment (FDI) is also said to have fallen sharply. The diversification of the economy is said to have happened mainly through the growth of services sectors, serving the domestic economy which Jefferis and his colleague say explains the phenomenon of economic diversification without export diversification. The report says Botswana – just like the rest of mineral-led economies – has suffered from the Dutch Disease, a condition whereby the growth of the resources sector and domestic services squeezes out non-resource tradeables production such as agriculture and manufacturing. The explanation to this, the report says, is that non-mining export earners are generally uncompetitive, or uncompetitive enough for local producers of goods and services to penetrate regional and global export markets. The 2016 figures show that diamonds still make up the bulk of the country’s total export earnings at 66 percent followed by services which account for 21 percent of export earnings. Meat products and other minerals such as copper and nickel and gold account for less than 3 percent of export earnings. Lack of a diversified export base raises an important question according to the report – of the whether the real exchange rate is overvalued. This is because the exchange rate is believed to play a critical role in determining export competitiveness and the ability of local firms to compete domestically with imports. The review indicates that in the past, the exchange rate policy was strongly focused on supporting competitiveness and diversification.