Economist: Develop new engines of growth

SHARE   |   Monday, 22 August 2016   |   By Ditiro Motlhabane
Imogen-Bonolo Mogotsi Imogen-Bonolo Mogotsi

An Associate Professor at the University of Botswana (UB)-International Economist-Imogen Bonolo Mogotsi says Botswana should intensify development and support for new potential  engines of growth to reduce over-reliance on infinite commodities like diamonds. Discussing the topic "Towards a Proud and United Nation" at a BOT50 public lecture organised by UB on Thursday, Mogotsi said diamonds and other mining resources being infinite commodities, Botswana should intensify economic diversification efforts to create the next economic lifeline. She cautioned that the mining sector is heavily dependent on developments in international markets and therefore exposed to turbulence in commodity prices worldwide, which presents a challenge for economies like Botswana. Among major challenges to economic diversification Mogotsi mentioned the difficulty of doing business in Botswana, an unfriendly environment for foreign investors due to poor work ethic, and immigration bottlenecks which are aggravated by heightened rejection of visas, lengthy turnaround time in processing of applications for work and residence permits, and mysterious cancellation or withdrawal  of same. "As a member of SACU Botswana is competing with four other neighbouring member states for the same investors, who enjoy duty free access within the customs union. With so many obstacles in Botswana, potential investors are likely to choose to settle next door where they would enjoy an extra benefit of a higher population, which translates into a bigger market. Government has to seriously look into removing these bottlenecks for economic diversification to be a success," she said.

Mogotsi warned that overregulation of the economy breeds corruption and underhand dealings among officials, and therefore called for the removal of red tape and review of regulations and laws that negatively impact doing business in Botswana. In fact, the same warning was sounded by Lesotho Minister of Trade and Industry, Cooperatives and Marketing Joshua Setipa and Botswana's only AGOA beneficiary-Carapparel Managing Director Sam Lin-in April. They revealed that when Botswana rejects applications for work and residence permits from highly qualified technicians from China, they simply cross the border to Lesotho. Lesotho is the number one exporter of apparel to the U.S under AGOA, having established one of the largest textiles & garment manufacturing industry in sub-Saharan Africa. Setipa emphasised the need for continuous improvement of the doing-business environment, like setting up a one stop shop for investors to access services in one place, as is the case in his country. He said Lesotho owes its success in AGOA to improving the doing-business environment.

Emphasising that economic diversity is a necessity, Mogotsi singled out manufacturing as one of the key engines of growth in middle income economies like Botswana due to its positive correlation to GDP. She said the transformation from agriculture to manufacturing to services is a structural change that developing economies have to undergo, hence Botswana should make concerted efforts to strenghten the manufacturing sector. In Botswana the sector has failed to produce the much desired results, and its contribution to the GDP has stagnated between four and six per cent. Currently manufacturing only contributes a measly 5.5 per cent to the GDP. Unlike agriculture, manufacturing has higher productivity, greater technology transfer and greater elasticity of demand with backward and forward linkages, Mogotsi said. For example,the manufacturing value chain could start with the supply of tractors and other implements/ equipment and machinery to processing of dairy products to produce cheese.  She also gave the example of the leather industry, which Botswana is developing by setting up a leather park in Lobatse. "Leather processing  is one of the industries we should have long developed considering that we are the biggest producers of beef for export to the European Union. We can only hope that government is committed to developing the leather industry to create jobs," she said.

Manufacturing plays a significant role, and outperforms other sectors in the balance of payments because greater tradeability of manufactured goods brings the much needed foreign exchange for the economy. The textile industry is another sector which experts agree that government should support to make it competitive because of its ability to create hundreds of jobs, develop skills among locals and export to international markets  exploiting opportunties under the likes of AGOA and the European Union Economic Partnership Agreements (EPAs). The U.S. government’s African Growth and Opportunity Act (AGOA) promotes economic growth, trade, and investment in Africa by providing duty free access to the U.S. market for over 6,400 products until September 30, 2025. Over the last 15 years, AGOA has created over 300,000 jobs across Africa and non-oil exports have quadrupled. "Because the domestic market (population) is very small manufacturing industries here should target producing for export.  We need to be more competitive and improve on the current situation where productivity is low, high cost of labour, (lack of and) high utility costs, challenges in access to serviced land and the general lack of entrepreneurial culture in SMMEs. There is a serious problem of lack of access to finance and lack of managerial skills which lead to collapse of businesses," said Mogotsi.

Government was also criticised for neglecting the agriculture sector, particularly the small holder subsistence farmers. Mogotsi said this is surprising because the sector remains one of the biggest employers and support a majority of the rural population. She said government should develop strategies that specifically target small to medium farmers who are looking to  graduate from subsistence to commercial agriculture, to develop and adopt new technologies for the sector. Since 2012 the Ministry of Agriculture in partnership with the International Fund for Agriculture and Development (IFAD) is undertaking an ambitious P250 million five year project, the Agricultural Services Support Project (ASSP) under the Integrated Support Programme for Rainfed Arable Agriculture Development (ISPAAD). The target for sustainable agricultural production is to increase cereal yields from 0.25t per ha to 1tonne per ha using recommended amounts of fertilizer, machinery, herbicides and minimum or zero tillage. Tourism is another sector which promises to increase contribution to the economy if strengthened. The corntibution of the tourism sector to the GDP doubled from 2.8 to 5.6 per cent between 2005 and 2014.

According to Mogotsi government should extend support to emerging industries (SMMEs) to help them access credit and provide mentoring and monitoring of the small businesses. She said SMMEs are important as they support the big business and the small man, and should be strenghtened and expanded to bear meaningful results. "Initiatives like CEDA do not help the small businesses because they are not geared towards SMMEs. CEDA is not user friendly. Their turn-around time is too long for a business. Although their website says their run-around time is 14 days, the reality is that application take up to 3-4 years going back and forth," she said.  On education and training Mogotsi said the country should infuse training in entrepreneurial and managerial skills in tertiary curiculla more aggresively. She said on a bigger scale such training should even be  spread throughout the education system from primary to sceondary schools. She reiterated the need for development of vocational and technical skills to empower graduates to create their own jobs upon completing their studies instead of depending on government to provide them with jobs.