Questions linger over Botswana’s economic diversification
Botswana has been unable to effectively diversify its economy and remains highly dependent on the diamond industry.
The United Nations University World Institute for Development Economics Research released a Working Paper titled Mining-related national systems of innovation in southern Africa: National trajectories and regional integration, which indicates that- given that diamond production in Botswana is expected to decline by 2025–27, Botswana’s main policy objective in the past two decades has been economic diversification, although progress in this direction has not met expectations.
The paper, which explores the linkages between the national systems of innovation of Botswana, South Africa, Zambia, and Zimbabwe and their respective mineral extraction and mineral processing value chains, including input industries, indicates that mining plays a fundamental role in the economic trajectories these of economies and its contribution to their GDPs was substantial.
It says although Botswana’s ranking in international business assessments has improved, “This has not translated into an inflow of investment, the economy has not diversified, and formal employment growth stems from the public sector only,” despite the economic diversification policies and strategies having been articulated at different levels.
The Economic Diversification Drive 2011–16, it says, identifies strategies for market and sector diversification. In the short term, the strategy relies on public procurement, but the longer-term goal is to promote internationally competitive enterprises from primary to tertiary sectors such as finance and hospitality. Mineral beneficiation, it adds, is included in the strategy and is indeed, where significant progress has been made.
“On the contrary, diversification into manufacturing is hampered by the fact that Botswana is a small market comprised of approximately two million people. The closest market is Johannesburg, which is already saturated and difficult to penetrate. Zambia and Zimbabwe are potential markets but most domestic firms are reluctant to enter these markets due to high entry costs,” the Paper highlights.
It explains that Debswana’s procurement is significant, but tenders are too large for local small, micro and medium enterprises. The Chamber of Mines’ Business Development Forum was launched in 2014 as an initiative by the mining industry to create efficiency and cost savings for the mining companies, and support enterprise development and economic diversification. The initiative aims to coordinate purchasing power between the mines to support local suppliers and attract foreign direct investment from Original Equipment Manufacturers.
The Paper mentions that in 2005 the Government of Botswana realized an opportunity to adopt a diamond beneficiation policy. “The diamond beneficiation policy has been remarkable in supporting Botswana’s ambition to move up the global value chain in sorting and valuing, marketing, and polishing and cutting. A key strategic aspect of the policy is that it was designed around De Beers, which exerts significant market power on domestic and global production, as well as global marketing and distribution channels,” it says, highlighting the relocation of the diamond sorting and valuing for De Beers global production from London to Gaborone.