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Growth sans Development

Growth sans Development M K SUKUMARAN NAIR The development trajectory of Botswana, a country which had an unparallel record of sustained economic growth for nearly three decades, has not attracted the wider international attention that it deserves. In this context, the efforts made by Mohanan Pillai (June 10, 2006) to analyse the growth process of the Botswanan economy and its impact on social development deserves special attention. Pillai argues that through prudent macroeconomic management, Botswana has succeeded in transforming the diamond boom of the 1970s to sustained economic growth without a

Discussion

sector in the real GDP did not fall as expected but it marginally increased. Contrarily,

Growth sans Development

the share of agriculture and manufacturedeclined. The sectors that showed a

M K SUKUMARAN NAIR

T
he development trajectory ofBotswana, a country which had anunparallel record of sustained economicgrowth for nearly three decades, has notattracted the wider international attention that it deserves. In this context, the efforts made by Mohanan Pillai (June 10, 2006)to analyse the growth process of theBotswanan economy and its impact onsocial development deserves specialattention. Pillai argues that through prudent macroeconomic management,Botswana has succeeded in transformingthe diamond boom of the 1970s to sustained economic growth without a“resource curse” being allowed to siphonoff its resources to unproductive sectors.This note seeks to look at some of the issues that accounted for the faster growthof the economy till the turn of the century andthe subsequent slow down heralding alarming signals for the future of the economy.Pillai, though he discusses the phenomenal growth of the aggregate and percapitaGDP, does not analyse the sourcesof growth except touching upon the contribution of the diamond mining sector. It wasnot merely the discovery of diamond minesper se but the fruition of the mines at reasonable intervals and the recovery from along period of drought that had devastatedthe country, preceding independence, thataccounted for sustainable high growth in thefirst two decades of development [Harveyand Lewis 1990]. In the subsequent twodecades it was the channelling of thediamond incomes into infrastructural investment that sustained the growthprocess. By the end of the last decade thecountry has reached a stage of a fairly highlevel of investment in economic and social infrastructure and hence it cannot absorb further investments at the same rate as in the past. This is clear from a sharp fall in therate of capital formation from 29 per cent in1993 to 18 per cent in 2005. This fall incapital formation has already started impinging upon economic growth. The real GDPgrowth fell to an average of 6.55 per centduring the last six years with wide year toyear fluctuations from 1.6 to 9.1 per cent.Though it is argued that a remarkablestructural transformation took place in theBotswanan economy, it may be noted thatsuch a transformation was a once and for all affair that took place in the early 1980s,when diamonds became the chief engineof growth. It may be inappropriate to callit a structural transformation, which has a wider connotation of dynamic growththrough inter-sectoral linkages; at best itis a structural break. It is evident from the data that from 1991 till date, the share of the mining and government sectors remained around 55 per cent.

Botswana’s growth strategy is relyingincreasingly on “private initiative” [NDP2003]. In line with this, efforts are afootto privatise the major state enterprisessuch as Air Botswana, Botswana Telecommunications Corporation, BotswanaMeat Commission, etc, which are the largest three non-mining enterprises in thecountry. At present, the majority of privateenterprises are in road transport, restaurant and trade, construction and financial services. Interestingly, the growth of thesesectors is crucially related to the size ofgovernment expenditure. Though thecountry has been depending heavily on foreign direct investment (FDI) for private sector growth, its inflow has sharplyfallen in recent years. FDI which constituted 27 per cent of the GDP in 2000-01fell to 12.24 per cent by 2004-05. Exportsas a percentage of GDP at constant prices fell by 10 percentage points during the last10 years whereas imports fell by only 5percentage points during the same period. The exchange rate of Pula, the Botswanancurrency – which was known as the “Swissfranc of Africa” – against all major currencies fell sharply in recent years due totwo successive devaluations adding up to

19.5 per cent. Furthermore, the Pula was put under a crawling peg programme lastyear where market adjustments automatically and instantly take place. To add fuel to fire, the rate of inflation has climbed to a double digit level during the last two years.

It is in response to the deceleration in the economy that economic diversificationwhich is earmarked as a key result area inthe Vision 2016 and Millennium Development Goal documents was given overridingpriority while Botswana celebrated its 40thindependence last September. Despite the best efforts of the government, developingthe non-traditional industries has been far from satisfactory [Limi 2006]. As may be seen from the data, not only that during2000-01 to 2004-05, the share of the mining marginal increase in their share in GDPwere trade, banking and insurance, generalgovernment and non-profit institutionsserving households. The land locked natureof the country which increases transportcosts, relatively high prices of utilities, asmall market that does not enjoy economiesof scale, a prime bank lending rate as high as

15.75 per cent, lack of skilled man powerand increasing crime rates are identifiedas some of the road blocks to economic diversification in the country. The averagetotal factor productivity growth sharplydeclined from 4 per cent during 1974-75 to1984-85 period to 0.5 per cent in the next10 years [Leith 2000]. To cap it all, as shownin a recent World Bank study, Botswana’sperformance in the areas of investor protection, “ease of doing business”, bureaucraticefficiency in the issuance of licences andpermits are worsening as time passes by.

Finally coming to the major theme ofPillai’s study, viz, growth versus development, most of the indicators of development are not very conducive to amelioratethe situation. The Gini coefficient of income inequality increased from 0.54 in1994 to 0.57 in 2003. As Pillai has alreadyindicated, poverty and unemployment areabove the tolerance limit by any standardin Botswana whose per capita income is ashigh as a little above US$ 4,000. Even whenpursuing the so-called prudent management of the economy, the government isreligiously adhering to the neo-liberal economic policy that has played havoc incountry after country. It seems the existingpolicy framework that sustained highgrowth rates for the last three decadescannot deliver the goods any longer andhence needs a radical restructuring.

EPW

Email: nairm@mopipi.ub.bw

References

Government of Botswana (2003): National Development Plan (NDP), Ministry of Financeand Development Planning, Gaborone, March.

Harvey, Charles and Jr Stephen R Lewis (1990):

Policy Choice and Development Performancein Botswana, Macmillan, London.

Leith, Clark J (2000): ‘Why Botswana Prospered’,paper presented at CASE Seminar, Universityof Western Ontario, November 14, http://www.ssc.uwo.ca/economics/faculty/leitn/Botswana.pdf

Limi, Atsushi (2006): ‘Did Botswana Escape fromthe Resource Curse?’, IMF Working Paper, WP/06/138, June.

Economic and Political Weekly December 23, 2006

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