Wesbank

Stop gloating about international ratings-Masire

SHARE   |   Wednesday, 19 November 2014   |   By Phillimon Mmeso

Botswana has been enjoying international ratings for its good governance and ability to use its natural resources to invest in human capital and development of physical infrastructures but economists are calling for the country to introspect.

Diamond Hub coordinator, Mmetla Masire said that the reason Botswana is failing to diversify its economy from its reliance on minerals is that it is stuck with international ratings.

“We must stop gloating about international ratings which are saying we have the best run economy in Africa and face the reality because we are on the ground and know what is happening,” said Masire.

Masire said that the country cannot diversify its economy by scattering small industries around the country but need big industries like auto mobile industries.

“We have come up with lot of good policies on diversification and the problem is implementation and countries are coming here to copy them and implement them while we gloat about the international ratings,” hit out Masire.

In a joint workshop organised by Botswana Institute for Development Policy Analysis (BIDPA) and Botswana Confederation of Commerce, Industry and Manpower (BOCCIM) on the future of Botswana, post diamonds, different experts said government is not doing enough to diversify the economy.

Dr. Khaulani Fichani, a mining expert said that according to their findings, government mineral revenues are projected to rise on the back of a projected improvement in diamond prices that would be underlain by strong supply demand fundamentals.

He said that there will be a crunch in the mineral revenues when the open pit mining operations in 2027, giving way to underground mining. The cost of operating an underground mine is higher than that of open-pit mining.

“We believe that there is scope for government to influence the long term planning process such that existing operations are not planned to be co-terminus with the mining licenses for Debswana and that possible projects at Debswana could be postponed to commerce when open pit operations cease,” observed Fichani.

Dr. Rob Davies, who presented his study on the economy wide consequences of declining diamond production in Botswana, observed that they will be a decline in GDP in diamond between 2025 and 2027.

“Here we report the most significant, which assumes that by 2027, GDP in diamond mining declines by 75% below its 2024 level. Thereafter it remains roughly constant,” said Dr. Davies.

Though diamond production will stabilise, Dr. Davies noted that the economy will continue to decline and this is largely by the impact the decline has on savings and therefore investment.

Dr. Davies observed that while some non-diamond sectors will initially expand slightly when diamonds decline, because of exchange rate effects, they will quickly start to slow down and even contract as investment fall because of lack of resources.

“The size of such a shock is enormous and its consequences for the welfare and the political economy of Botswana are immense,” he cautioned.

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He said that it might be possible to ameliorate the decline in the short term by policy responses, but this will only be by running up government and foreign debt.

He warned that the short and medium term policies to reduce the decline will only delay the inevitable and likely exacerbate the eventual adjustment that is required, adding a debt crisis to the diamond depletion.

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Dr. Davies called on government to come up with a Sovereign Wealth Fund-a state owned investment fund or entity that is commonly established from balance of payments surpluses, official foreign currency operations, the proceeds of privatisation, government transfer payments, fiscal surpluses and receipts resulting from resource exports.

Commenting on some of the reports, economic consultant Dr. Keith Jefferies said that Botswana has been investing too much human and physical capital but with no positive results.

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“There is too much investment in human capital but the results are very low, rather than in sovereign wealth fund” he said.

Dr. Joel Sentsho, Trade Policy Advisor, Ministry of Trade and Industry admitted that implementation of policies is still a big challenge in government.

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He said that his ministry has come up with  special economic zones and industrial development policies  in order to help to diversify the economy of Botswana.

Professor Roman Grynberg, senior researcher fellow at BIDPA said Botswana need to be competitive in the global market and speed up its diversification policies which are gathering dust in government offices.

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He said that Industrial Policy in Botswana appears unconnected to the range of developments occurring in the mining sector.

“Possibilities for backward and forward linkages exist and will not be exploited unless there is a range of new policies and actions to avoid the export of unprocessed raw materials with no local value addition,” said Prof. Grynberg.

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He called on the country to reform its tax incentive system or it will not attract investment and recommended that the creation of tax-free export processing zones would be an important first step.

“To merely reform the tax system without addressing the underlying causes of lack of competitiveness of firms located in Botswana would be largely futile and would not result in long term sustainable investment,” he noted.

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To do that the country need to address its skilled professional and labour cost, transport costs and interest rates, reasoned Prof. Grynberg.

The BIDP think tank suggested that Botswana need to dismantle the restrictive trade practices of professional associations in the recognised professions in Botswana noting that it is vital along with training more Batswana in the recognised professions.

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Botswana has a combination of vast potential energy resources and that are emerging as very substantial deposits of base metals, said Prof. Grynberg who added that it needs to develop synergies between these resources to provide strong incentives for firms to locate. He said that the country can take a cue from countries like Malaysia and South Africa.

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