An Assessment of The Diversification-Growth Implications i - PowerPoint Presentation

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An Assessment of The Diversification-Growth Implications in Botswana and Emerging Policy DynamicsGrace Tabengwa Johane Motsatsi

Conference 27-28th Aug 2014, Gaborone Slide2

Structure/OutlineOverview-Context, Scope, objectivesAnalytical approach

Assessment key findings Diversification-growth implications (i)

Performance and Progress on Trade Expansion and a Diversified Export Base

(ii) Performance and Progress Towards a Diversified Growth Base(iii) Foreign Direct Investment Performance (iv) Employment Generation vs Unemployment Challenges and Emerging Policy Issues

Success country cases

Conclusions and recommendations

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Overview-Context, Scope, objectives

Botswana's Growth Inter-Linkage with Mining Sector Performance make Diversification a Policy Priority 

Source: Generated from Statistics Botswana, MFDP and IMF/WB Statistic

Main Policy Framework in the last 2-3 Decades, albeit subtle changes

Encapsulated in National Development Planning Process (2-3 Decades)-NDP 9 major theme on diversification

Recognised

Major Government Commitment through Budget Resource AllocationsCrystallized Botswana Excellence Strategy for Economic Diversification (2009)

Economic Diversification Drive, Sector Strategies, Policy Initiative and Programmes: (FAP, CEDA, LEA, ISPAAD, NAMPAAD, ARAP, ALDEP, Economic Empowerment, Trade Policy, Marketing and Branding Botswana, Export/FDI Incentives, Competitiveness Reforms,-Doing Business and Global Competiveness, HRDC)

National Vision 2016

Beneficiation, Diamond Trading Company Relocation

Supportive Micro-Macro Policy Initiatives across sectors Ministries, parastatals, privates sector agencies, SMME Support, Reforms for Business and Regulatory FrameworksSlide4

Assessment Focus… Evaluate diversification policy focus versus performance against the attainment of key national policy objectives as conceptualized in the context of Botswana. Defining Diversification

vs Overriding National Objectives for Diversification:A diversified export base, promoting non-mineral export. expanding trade, expand revenue sourcesA diversified growth base-boosting non-mining sector growth and sustenance. Attract FDI to other sectors of the non-mining economy to support sustainable growth, enhance industry growthGenerate employment given its importance for inclusive growthSlide5

Setting ObjectivesUtilise possible indicators for assessment based on the concept of diversification as pursued in BotswanaQuantitative and Qualitative Assessment

(i) Performance and Progress on Trade Expansion and a Diversified Export Base(ii) Performance and Progress Towards a Diversified Growth Base(iii) Foreign Direct Investment Performance

(iv) Employment Generation

vs UnemploymentRecognised developmental achievements: High growth, HDI, Re-investment of mining revenues to create growth catapulting Botswana to MIC status-sound and strong policies and institutions.Impetus-Catalysation of Diversification and its Delivery…Policy Dialogue Today ? But what is the progress towards Diversification…… How are we doing? What can we do even better in fast tracking the diversification process towards Sustainable growth…Slide6

Assessment key findings (i) Performance and Progress on Trade Expansion and a Diversified Export Base

(ia) Trade Profile: Some export activities emerging (services, textiles, vehicles) ; mining export dominance in total exports, volatility , direct impacts on growth performance via trade and revenue channels

Still concerns with no major achievements towards as varied sustainable export profileGrowth implications: Trade Balance, Revenues, BOP, Foreign Exchange Reserves, Fiscal Strength-Budget Position and GrowthFigure 1: Botswana’s Export Growth Performance (%) and the Export/Import Profile (Current, Pula Millions)Slide7

(ib) Non-Mining Exports – Positives emerging, sustenance concerns, filtration in major way to broaden export profile…not much has changed in terms of export diversity Growth implications: via Trade and Revenue Channels-Trade Balance, Revenues, BOP, Foreign Exchange Reserves, Fiscal Strength-Budget Position and Growth,

Source: Generated from Bank of Botswana Annual Reports, Statistics Botswana

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(ic) Export composition: Botswana's non-diamond exports remain concentrated around five major commodities: copper-nickel matte, soda ash, meat, hides and skins, and textiles even two decades of policy initiatives seeking to boost export diversity.

Slow and minimal filtration of export activities despite identified opportunities, enhanced marketing to-No major “new export activities …data for performance.Positive achievements also noted with service exportsSustenance Concerns of Performance- Textile exports-benefited from AGOA, Government support. Vehicle exports effected by closure of Botswana Motor Vehicle Company which relocated to RSA-Table 1; Performance of other Major Exports (P Millions )

Copper Nickel

Beef

Soda Ash

Textiles

Vehicles

Gold

2004

757.5

284.0

250.8

560.8

556.1

…

2005

2 301.0

309.9

332.1

1 117.0

569.7

182.9

2006

3 822.8

363.2

462.7

916.7

183.6

206.320075 521.7 592.3 473.52 787.5 218.7 239.420085 923.6 530.3 505.21 819.3 413.6 382.420093 620.0 480.1 526.01 417.6 490.9 269.620104 152.8 868.8 506.41 118.5 275.3 460.520113 398.2 462.4 522.31 777.6 830.5 524.720123 393.5 522.9 644.6614.3989.9 618.420134 615.7 996.0 723.4 361.8 658.6 451.1

Source: Bank of Botswana Annual ReportSlide9

(id)Revenue diversity- constrained by limited export diversity and trade profile. Positive Improvements, Challenges for Customs and excise-tariff liberalisationGrowth implications: Revenues key to pursue developmental objectives in NDPs, limited fiscal flexibility eg impact on NDP 10 and future planning process already , BOP, Foreign Exchange Reserves, Fiscal Strength-Budget Position and Growth

Table: Revenue Sources and Shares in Total (Percent)

Customs & Excise

Mineral

Non-Mineral Income Tax

Export Duties

Property Taxes

Vehicle Taxes

License Fees

VAT

Airport Tax

2005/06

17.65

49.60

13.49

0.00

0.06

0.55

0.09

8.89

0.08

2006/07

24.13

47.87

11.21

0.00

0.06

0.51

0.08

8.200.032007/0827.3738.4613.600.000.110.550.099.960.082008/0925.4533.43

15.13

0.01

0.08

0.630.0914.370.072009/1026.4230.2718.520.000.090.630.1113.130.002010/1119.4537.7920.100.010.110.720.1014.530.002011/1221.8941.1114.960.000.170.540.1012.900.002012/1334.1328.9916.140.010.120.540.0712.680.00!2013/1431.0830.1120.372014/1531.830.431.2

Source: Statistics Botswana, MFDP Slide10

(ii) Performance and Progress Towards a Diversified Growth Base(

iia) Non Mining Growth –Positive though still concerns with sustenance across other sectors . Overall lower national growth rates in the era of diversification:Growth outcomes which remain determined by mining sector, lower growth at about 4.5-6% range in 2011, 2012,2013, 2014 projectionsGrowth Implications-though positives emerging still questions sustainability , broad based growth, targets attainment e.g

7.5%Mining, Non-Mining and Total GDP Performance (Constant Prices, Pula Millions and %)

Source: Compiled from Statistics Botswana, MFDP .Slide11

(iib) Sectoral Performance -non-mining sectors picking pace since the

1990s. Gov’t and mining still significant though share declining. Emerging Sectors albeit sustainability concerns for “Growth Drivers”Implications for growth: Though positives emerging..sustenance for broad based growth Figure 3: GDP Shares by Sector (Percentage)

Source: Statistics BotswanaSlide12

(iii) Foreign Direct Investment Performance

Region/economy

2005

2006

2007

2008

2009

2010

2011

2012

Africa

30 917.6

36 575.2

51 273.6

58 894.2

52 964.3

43 581.6

47 598.1

50 041.1

Southern Africa

6 701.4

1 334.4

8 117.4

13 921.3

10 128.7

2 047.5

8 722.1

5 399.8

Angola

- 1 303.9- 37.7- 893.3 1 679.0 2 205.3- 3 227.2- 3 023.8- 6 897.8Botswana 278.6 486.4 494.6 520.9 128.8- 6.1 413.6 292.5Lesotho 70.3 59.9 106.5 111.9 99.9 113.7 132.1 172.3Malawi 139.7 35.6 124.4 195.4 49.1 97.0 128.8 129.5Mozambique 107.9 153.7 427.4 591.6 892.5 1 017.9 2 662.8 5 218.1Namibia 348.0 386.6 733.0 720.3 522.1 793.0 816.0 357.5South Africa 6 646.9- 526.8 5 694.5 9 006.3 5 365.4 1 228.3 6 004.3 4 572.5

Swaziland- 45.9

121.0

37.5

105.7 65.7 135.6 93.2 89.6Zambia 356.9 615.8 1 323.9 938.6 694.8 1 729.3 1 108.0 1 066.0Zimbabwe 102.8 40.0 68.9 51.6 105.0 165.9 387.0 399.5Table 6: FDI inflows, by Region and economy, 1990-2012 Millions of dollarsSource: UNTAD databaseSlide13

Sector Level FDI –Some positives noted albeit still minimal among “”Potential Growth Driver sectors-finance, retail,services..however, dominance of mining noticeableTable: Share in Total FDI Levels by SectorSlide14

(iv) Employment Generation vs Unemployment

Gov’t major employer, mining without employment generation capacity despite being major sector. Limited pvt sector job market profile, Deceleration in absorptive capacity and employment creation, High unemployment…Implications for poverty, inequality ,

sustainable inclusivee growth..ultimately impacts overall growth and development achievementsTable 6: Estimated Number of Paid Employees by Sector and Economic Activity,( Percentage Share in yearly averages)Slide15

Formal sector employment increased from 315 791 in 2008 to 323 803 in 2009 and to 335 156 in 2011 yielding an average annual growth rate of 2.2 percent (Statistics Botswana). Unemployment rate decreased from 19.5 percent in 2008 to 17 percent in 2009 and then marginally increased to 17.8 percent i2009/10-Absorptive capacity shrinking, average annual employment growth declining and employment elasticities

Source:

Siphambe

(2007)Slide16

Summary Findings, Challenges and Policy IssuesKey Summary Findings(i)

Positives Emerging…Though still Limited Trade and Export Diversity: Positive turnaround for diversification though export and growth diversity still remains limited(ii) Positives Emerging….Though Still Limited Growth Diversity for Sustainability Assurance: Overall rate of growth decelerating, non-mining growth though picking up remains below that required for sustainable growth (iii) Emerging Positives…FDI Still Biased Towards Mining raising concerns for Non-Mining Industry Expansion Prospects: Largely biased towards miming and extractive industry

(iv) Decelerating Employment Generation and Absorptive Capacity Raising Concerns for Inclusive Growth and attaining “Prosperity for All”: Capacity to generate employment by private sector remains low while government capacity for labour absorption is decelerating

(v) Unemployment Dynamics-Rising Youth Unemployment: Unemployment rates quite high and is a major concern among the youth-future inter-generational successIn general..Assessments limited by adequacy of data to track diversification broadly at a more disaggregated level…at Sector /Industry level, More Importantly the Performance of Programmes, Strategies, Initiatives versus realisation of objectives. Policy framework is to a large extent in place and the major challenge is turning diversification strategies into

realisable

results…time for turnaround to implementation (SEZs, NHRDC, Entrepreneurship/SMME,

Pvt Sector Dev, Regulatory/Business ReformsRecognised State of Transition….Outlook positive for diversification in the medium –long term horizon…Process takes effect since a lot is being done to set up and fill gaps/address challenges/ Some Strategies Unfolding, Reforms just commenced in some areas

Challenges that still prevail: impacting diversification process and its pace:

Competitiveness….Sector Strategies, Doing Business Reforms, Global Competitiveness Reforms

Requisite Infrastructure

Requisite Human Capital …Sector Strategies, NHRDP

Capacity for InstitutionsMonitoring and Evaluation-Sector, Industry…Coordinated

Diversification indicators, Alignment of Policies to M and E

Market opportunities, export and investment opportunities-their identification and exploitation Slide17

Success Country LessonsBotswana’s diversification policy approach lately integrates lessons from success countriesMauritius EPZ and trade policy approach to develop export sector

Botswana recent policy focus towards SEZ-Human capital development-Working on National Human Resource Development Plan-Sector Strategies to be developedTo great extent Botswana is setting its policy framework to diversify economic with lessons from successSouth Africa-PPPsPPP policy for infrastructure development, Private Sector Role, thriving business environment….can Botswana dra

lessonsSouth Africa IDZs, Botswana SEZ., lessons for policy approach for partnerships.

some lessons for technological advancement Chile Experience-Success on transformation, employment creation, diversification, addressing inequality, Rwanda Made notable strides in competitiveness lately-issues for regulatory and business environmentMore emphasis should be directed at capacities to turn strategies into results. Strategies and Policies are there…..how do we shift to the next stage is often the constaining

factor

Market challenges, export opportunities, FDI opportunities, Infrastructure, Competitiveness

Capacities to Turn Strategies into realisable results, pace of ImplementationCapacities to Identify Opportunities and Effectively harness their Potential

Sector Specific Challenges- Supportive Research and Dynamism to StrategiesSlide18

Conclusions and RecommendationsDespite efforts to promote and develop export development programme and export promotion there is limited progress towards a diversified export base and thriving export sector, the paper recommends More focus on unlocking the

realisation of the diversification process through capacities to identify export opportunitiesSector Specific Strategies…more rigour in sector strategies and their delivery, More work on Micro Policy to leverage Macro Policy to support sectorsStrengthening Capacity of Institutions Need for institutional support and the requisite capacity to ensure strategies for export development across sectors are turned into realisable diversification to deliver export industries.

Enhance capacity for identification and promotion of exports and building their diversity with requite supportive national policies and regional opportunities in Southern Africa which remains a major weaknessTo expand exports, Botswana should take advantage of partnerships that can establish export processing zones and public/private sector partnerships export sector strategies for growth.

This requires strong institutional frameworks supporting partnership dialogue on critical issues and impediments to trade/export development (e.g., customs valuation procedures, bureaucratic processing procedures, transport corridor inefficiencies, and lack of knowledge pertaining to export markets). Slide19

Capacity for identification of export and investment opportunities and to shift strategies to realization of results of diversification initiatives.Trade Expansion and broadening export base: export processing zones to expand-potential export sectors such as manufacturing, services, tourism, textile, agriculture to broaden the export and industrial sector. –SEZs….Trade Facilitation and Capacity Development Regional Integration: Exploitation of trade agreements to broaden the export base even more urgently. An example is the case of AGOA to develop a sustainable textile sector. An extended and revised AGOA Taking advantage of regional integration to boost export and extra and intra-regional trade and developing requisite infrastructure such as for the water, energy and power generationSlide20

Continued Strategic Interventions to address Competitiveness, Productivity and Efficiency, Doing Business, Regulatory Reforms and Supporting Private Sector DevelopmentHigh factor productivity remains important to achieve a conducive environment for the Private sector , enhancing efficiency and productivity The textile industry: AGOA has been the dominant driving force behind recent growth of the apparel sub-sector in a number of SSA countries, including Botswana. With prospects for AGOA renewal, the export sector should have capacity to exploit the trade preferences which is an area that requires focus since many developing countries lack capacity to fully exploit and take advantage of trade preferences.

Critical to Hasten NHRDP and its effective Implementation: Human capital development and hastening the implementation of the NHRDP to address skills requisite to support the diversification and competitiveness reform process.Strategic investment Partnerships: where major investments are required the strategic partnerships should focus on infrastructure development, water, sustainable energy generation and power supply, health, education, agricultural sector, manufacturing beyond extractive sector, ICT to create an environment conducive for export and investment development..

Strategic Inclusive Partnerships and Initiatives: to address existing social, economic and institutional development and capacity gaps. Capacity building of private sector, entrepreneurship, SMME development and key policy making and implementing institutions to enhance delivery on diversification.Slide21

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