1. THE BOTSWANA DEVELOPMENT MODEL SINCE 1966: EVALUATION OF DIVERSIFICATION EFFORTS. WHAT WORKED? WHAT DIDN’T? Keith Jefferis BIDPA/UB/FES Conference 27 th 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 GDPIndex of Diversification

8. Changing Structure of GDP: Non-mining GDP has changed from ag/mfg to services Agric + ManufacturingServices (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  Exports (unlike the economy) has a small contribution from services  Although data on services exports are very poor Structure of Exports, 2013

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.