July 30, 2011

Prosperity and tranquillity are fragile, says US report

A report by US-Africa Command (AFRICOM) says despite the Botswana government's achievements since 1966, Botswana's prosperity and political stability are more fragile than is frequently recognised. Dated June 2011, the report says three current realities form the core of this fragility: a population that is highly-dependent on social welfare programmes provided by the state; a state that is heavily reliant on a single commodity (diamonds) that is highly sensitive to fluctuations in the global economy; and a narrow economic base that leaves the country deeply tied to that of neighbouring South Africa.
The report says in the short-term, exogenous shocks are the most plausible threat to Botswana's national interests and wellbeing. Botswana's overdependence on the diamond sector is the most serious problem facing the government, making it at once the country's greatest weakness and blessing. This leaves the state highly dependent on a single export commodity - gem diamonds - that itself is highly susceptible to fluctuations in the world economy.

Analysing the effects of the global recessions on Botswana, the report says the diamond industry was hit hard, with exports severely declining during the global economic crises of the early 1980s and in 2008-2009 when production fell to 300, 000 carats a month compared with nearly three million carats a month in 2006 - a drop of 90 percent.
"Such drops have a dramatic impact on government revenues because the diamond sector, accounts for more than half of government revenue," the AFRICOM report says. "As a result of the 2008-2009 global financial and economic crisis, Botswana faced a 14 percent budget deficit in 2010 and was forced to postpone new development projects, halt civil service recruitment, and cut back on social welfare spending." On a brighter note, the report says diamond resources seem to be sustainable at current levels for the next 30 to 40 years. It also points out that Botswana has large unutilised coal and methane deposits which, with an investment of $1.5 billion (P9.5bn), could be used to generate electricity for the domestic market and for South Africa.

AFRICOM notes that exploration is underway for natural gas and uranium in the country. There are small deposits of nickel and copper, though current copper mines are coming to the end of their productive life. "If these alternatives could be exploited, the government could sustain its welfare culture, although continuing demand for gem diamonds will remain the critical requisite." Regarding industrialisation, the report notes that Botswana is difficult to sustain manufacturing industrial activities in the face of South African opposition. "The Botswana market is too small, the cost of labour is too high, and the quality of products is too low to compete in the international market or even to be exported to South Africa or Zimbabwe."

The report observes that Chinese and Zimbabwean construction companies have largely undercut the domestic construction industry during the past five years, sending many Batswana-owned companies into bankruptcy. The Chinese invariably bring in labour from their homeland and employ few Batswana. AFRICOM says Botswana's past as a subsistence, pastoralist economy and its post-independence emergence as a world diamond-mining economy has created a culture of dependency among its population in which Batswana never developed an entrepreneurial culture.

"Ambitious, well-educated Batswana hope for a job in the civil service, then to rise through the state bureaucracy, and perhaps eventually to become politicians with the ruling BDP," says the report. "The state is by far the largest employer; it is a consumer of wealth rather than a creator, absorbing some 32 percent of GDP." (Mmegi Online)

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