Keith Jefferis BIDPA/UB/FES Conference 27 th August, 2014

1. The Botswana Development Model since 1966: Evaluation of Diversification Efforts. What worked? What didn’t? Keith Jefferis BIDPA/UB/FES Conference 27th August, 2014

2. Diversification Policy • Diversification a long-standing policy objective • Initial dependence on cattle/beef • From mid-1970s – dependence on minerals • Concerns about • conventional mineral economy dependence, limited direct job creation etc. • Dutch Disease – squeezed non-mining tradeables sectors • post-mineral sources of growth

3. Measuring Diversification • No single, agreed definition. Focus on sustainability & living standards • Structure of GDP & sources of GDP growth – sectoral diversification – but more diversification may just reflect declining minerals • Fiscal diversification – sources of revenue • Export diversification – balance of payments sustainability • Employment, living standards, poverty and income distribution

4. Policies to promote diversification • Macroeconomic policies • Exchange Rate Policy • Monetary Policy • Reserve accumulation • Invest mineral revenues • Labour market policies • Minimum wage • Wage compression • Immigration

5. Policies to promote diversification • Early sectoral/subsidy schemes • FAP • ARAP, ALDEP • Industrial Development Policy (1984, 1998) • Institutions • BDC, NDB • TIPA • Parastatals • WUC, BPC, BTC, BHC, BMC, BAMB

6. Later policies to promote diversification • Macroeconomic policies • Exchange rate – largely unchanged • Monetary – positive real interest rates • Institutional proliferation • CEDA, BEDIA, IFSC, BITC, BNPC • Labour market • Wage decompression • Restrictive immigration policy • Industry • Citizen economic empowerment, EDD

7. Does mining dominate GDP? No longer Mining share of GDP Index of Diversification

8. Changing Structure of GDP: Non-mining GDP has changed from ag/mfg to services Agric + Manufacturing Services (non-govt)

9. Drivers of Growth • Mining no longer driving growth • But growth has been declining

10. Fiscal Diversification • Minerals no longer the largest source of fiscal revenues – so less dependence • But “domestic” revenues still relatively low • Government activities and popular expectations built around higher revenues than will be sustainable in future

11. Export Diversification • Exports less dependent upon rough diamond exports than in the past • But this is due to exports of polished diamonds (does this mean more diversification?) • Non-mining exports lower (as %) than any time in the last two decades

12. Export Diversification Structure of Exports, 2013 • Exports (unlike the economy) has a small contribution from services • Although data on services exports are very poor

13. Export intensity of different economic sectors • Key sustainability problem • Structure of the economy is shifting • Moving from tradeables (exports) to non-tradeables (services) • Must promote services exports (and better data)

14. Unemployment & Poverty • Unemployment stubbornly high • Rate of job creation too low • Poverty and inequality very high by standards (upper MICs) • Have not yet achieved participatory growth

15. Future Challenges: Export or Die! • GDP and government budget much less dependent on minerals than 20 years ago • Diversification – yes, but not sustainable diversification • In many respects, the challenges remain the same as in the early 1980s: • Employment creation • Developing non-mining exports • Poverty alleviation and participatory growth • But the environment is now more challenging: • Closer to the end of diamonds • Expectations/dependence on government • “Financial cushions’ (fx reserves & govt savings) being depleted • Economy much more dependent on services – but we hardly export • Many policies have been tried, but most have not succeeded • Importance of exports and competitiveness not sufficiently appreciated

16. The Key Diversification Challenge Moving from an economy based on windfall income – well managed, but unearned – to one where income and wealth are based on competitiveness, efficiency and productivity.