06 Aug 2019

Independent think tank, Econsult, states that an export-led economy could be the solution as the country continues to face uncertainty as the diamond industry goes through a slump.  

In the latest quarterly review, the company states that while the country has made efforts to diversify its economy, this has been mainly in services, which are just for local consumption. 

“One of the main structural problems facing the Botswana economy is that the economic diversification that has occurred has been into non-tradeable sectors, mostly services, that serve the domestic economy rather than exports,” reads the review. 

It states that a major challenge for the economy has been that the main export, diamonds, has not been growing. According to Econsult, rough and polished diamonds accounted for 73 per cent of total exports of goods and services in 2018, signifying little room in export diversification. 

The review states that diamond exports have been declining in relative terms in the past two decades, and in 2018, were equivalent to 24 per cent of GDP, compared to over 50 per cent of GDP in the mid-1980s and 40 per cent in the early 2000s. 

“This is one reason for lower economic growth rates, a shift towards balance of payment deficits over the past decade and hence declining foreign exchange reserves,” it reads. 

Exports are crucial for every economy as amongst other reasons, they are required to generate the foreign exchange earnings needed to pay for imports. 

Econsult states that a country that does not have sufficient exports will eventually experience a balance of payment and debt crisis. 

Given the small market Botswana has, concentration on import substitution will not bring the desired results as only less than 10 per cent of the P18 billion import bill can be substituted, the review states. 

The analysts, led by Dr Keith Jeffries, note that the small size of the domestic economy will always provide a constraint on the potential for import substitution led growth. 

As for export led growth, it offers unlimited opportunities given the size of regional and international economies. 

Econsult analysts state that this however cannot happen over-night as Botswana has struggled to develop dynamic export sectors outside diamonds. 

Most other non-diamond goods exports such as copper/nickel, beef and other manufactured goods have experienced slow growth or even declined. 

According to Econsult, several key components need to be addressed, amongst them the need to attract Foreign Direct Investment (FDI). 

The analysts note that foreign-owned firms typically bring access to markets and supply chains, expertise in product design, technology and skills. 

Further, Botswana has access to a number of regional and international trade agreements amongst them SACU, SADC Free Trade Area, SADC-EU Economic Partnership Agreements and AGOA. 

Econsult advices that challenges such as non-trade barriers, transport costs, product competitiveness and standards be addressed for Botswana to fully utilise international markets. Ends