31 Mar 2022

Botswana’s trade balance in 2020 was a deficit of P23.2 billion while in 2016 there was a surplus of P16.1 billion. 

Finance and economic development minister, Ms Peggy Serame explained that such change was mainly due to a substantial decline in exports, which fell from P80.4 billion in 2016 to P48.2 billion in 2020, or 33 per cent which, in turn, reflected variable performance in the diamond market. 

Ms Serame, who was responding to a question in Parliament, added that the COVID-19 pandemic also impacted negatively on Botswana’s trade balance, especially the top two export earners, being diamonds and tourism. 

“Imports, on the other hand increased from P64.3 billion in 2016 to P71.4 billion or 11 per cent. Therefore, changes in Botswana’s trade balance were driven much more by the performance of exports than the level of imports. However, it should be noted that a negative trade balance is not a complete reflection of the country’s external position,” she explained.

She added that the more relevant balance to consider, however, was the overall balance of payments rather than the trade balance. 

“Indeed, as a matter of logic, positive trade balances in some countries must, by definition, be accompanied by an equivalent total of negative trade balances in other countries. Besides the trade balance, there are other balances that constitute the external balance or balance of payments of the country,” she said. 

Such, Ms Serame said, included income, transfers and capital flows, adding a country may have a negative trade balance, but a positive balance on the balance of payments, depending on those other items. 

“It is the overall balance that determines changes in the level of the foreign exchange reserves. A further important point to note is that negative trade balances are common across countries. Indeed, as a matter of logic, positive trade balances in some countries must, by definition, be accompanied by an equivalent total of negative trade balances in other countries,” she said.

On high income status, the minister said such was determined by the level of a country’s GDP per capita, saying ‘GDP, or output, is driven by various economic activities, including consumption and investment as well as imports and exports. In other words, production for both the domestic market and the export market drive GDP growth.’

Hence, she said government’s policy focused on both import substitution (production for the domestic market) and export-led growth.

“In the long run, export-led growth is the more important, as it has far greater potential for growing GDP. International experience shows that rapid export-led growth and diversification is the key to achieving high-income status. While import substitution also plays a role, it should be noted that many high-income countries also have high levels of imports.”

Minister Serame further indicated that GDP growth was not just dependent on trade, but also on domestic consumption and investment, adding in most economies, the two categories accounted for a larger share of expenditure than foreign trade. 

“Hence the critical importance of policies to increase household consumption, as well as public and private investment. The latter is particularly important as it contributes to national income both in the short term, through its important on aggregate demand, and in the long term, through enhanced productive capacity and employment creation,” she said.

On the other hand, the minister indicated that achieving high-income status by 2036 required average annual real GDP growth of around six per cent a year over the 15 years from 2022-2036. 

“This is significantly higher than the average annual growth rate of four per cent over the decade before the shock caused by the COVID-19 pandemic in 2020. Hence structural change in the drivers of growth is required.

This is achievable, but is primarily dependent on raising productivity and the successful diversification of exports so that the desired export-led growth model can be achieved,” explained the minister

Legislators also heard that government had implemented various policies and other measures to encourage local production for import substitution. 

However, Ms Serame said it was critical to ensure that such measures did not undermine domestic competitiveness, which was critical to support export-led growth. 

She added that policies that had been adopted to promote local production for import substitution included the Economic Diversification Drive (EDD) in 2011 and most recently the Economic Inclusion Act and the Public Procurement Act. 

“Data on goods imported into Botswana are readily available from Statistics Botswana, at a detailed product level. This provides an indication of products that can potentially be produced locally to substitute for imports. Products that can potentially substitute for imports without significantly raising prices need to be characterised by production processes that do not require economies of scale to be competitive, due to the small size of our domestic market,” she said. 

Examples of products with such characteristics that were in demand locally, she said included selected agricultural products, processed food items, building materials, furniture, and chemicals. 

She further told Parliament that the Ministry of Investment, Trade and Industry and the Botswana Investment and Trade Centre (BITC) regularly produced information on potential items for local production, drawing upon such trade data. 

“Ultimately, of course, it is up to the private sector to identify opportunities for investment in competitive production for both the local and export markets, while government focuses on the creation and maintenance of a conducive policy environment for such investment,” Ms Serame said.

Gaborone North MP, Mr Mpho Balopi had wanted to know how Botswana’s export and import trade balance or deficit or imbalance was compared to five years ago.

He had also asked the minister to state whether Botswana could achieve high income status under the current trade balance or imbalance and, if so, when it can be realistically achieved.

Further, the legislator wanted to know if government had not identified any items on which money was spent outside the country but which could be undertaken locally in order to circulate it in the economy for job creation. 

ends