Govt must move over - World Bank

Brian Benza
Staff Writer | Wednesday September 29, 2010 00:00

 

In an interview with Mmegi on the sidelines of the National Business Conference (NBC) that began here on Monday, World Bank chief economist for Africa, Shantayanan Deverajan, said although government interventions might have been with the best intentions, they have had the undesired consequences of crowding out the private sector, which is supposed to lead economic activity.

'Government has overcommitted themselves in some of the economic activity that should have been left to the private sector,' Deverajan said. 'And I don't really blame them because they have had a lot of money from diamonds and the need to make way for the private sector could have been less urgent.

'But now with diamond revenues fluctuating and about to significantly reduce in about eight years, this is the best time to move out of the way and let private investors take charge.'

Botswana embarked on an economic diversification drive in the late 1980s and formally adopted the strategy in NDP7 in 1990. But not much progress has been made to-date, and economic activity is still primarily driven by the government.

By comparison, countries like Mauritius, Singapore and Dubai have successfully managed to diversify their economies within an average period of 10 to 15 years. Deverajan says these countries managed simply because they did not have diamonds.

'When you look at it, it could have been costly for Botswana to actively pursue diversification 20 years ago because that would mean paying a lot of subsidies to the other industries so they compete with diamonds,' he says.

'And that might not have been worth it. That is the difference with the other countries such as Singapore because they did not have anything and that's why they are under greater pressure to diversify revenue streams.'

Although Deverajan attributes the slow pace of diversification to reluctance and procrastination by the government due to its significant diamond revenues, he also says most African governments desire to provide cheaper utilities and infrastructure in order to gain political patronage.

However, with eight years to go before the dreaded drop in diamond revenues, the situation is not yet critical mainly because Botswana managed to build up significant savings in the good days.

'Unlike most economies that have experienced this 'resource curse,' Botswana has significant reserves which it can use as a cushion,' he says.

Asked if he sees the Botswana Government doing enough to make diversification a success in the next 10 years, Deverajan says doing enough would mean that 'government getting out of the way':

'What I see here is the government trying too much to play an active role in coming up with strategy. I was listening to a presentation by the government strategic office and they had a whole list of things that the government should do proactively. One of the best things that they can do is to simply get out of the way.'

The government recently announced that efforts were underway to craft an overarching medium to a long-term Economic Diversification Drive (EDD) Strategy for Botswana to give direction and guidelines on how best the private sector can be weaned off the government's support and protection.

The development of the medium to long-term strategy, which comes as a result of a Presidential directive, follows the formulation of a short-term EDD strategy last March.

The short-term strategy involves the use of administrative interventions to promote domestic production through the use of local procurement, targeted domestic production and consumption and citizen economic empowerment strategies.

'I can give an example of the famous Indian IT revolution,' says Deverajan. 'The growth of India has been driven by its worldwide excellence in IT. This was done by simply de-regulating that sector and not by building up infrastructure or anything.'

While the economist and the private sector think that it is the government that needs to give way for private investors, the government, on the other hand, believes the private sector is too dependent on it and should be weaned off.

Giving a presentation on Botswana Excellence - a Strategy for Botswana's Diversification and Sustainable Growth, the Director General of the National Strategy Office, Grace Muzila, urged the private sector to ask for space in the economy, not just short-term contracts.

Other commentators at the NBC said there had been a bias for social infrastructure development rather than economic infrastructure development. Said renowned economist, Keith Jefferis: 'We have seen roads being built in very remote areas while our Internet bandwidth is dreadful here. Yet we are saying we want to attract ICT companies in the innovation hub.'

Deverajan agrees and warns the government against concentrating on social infrastructure to the detriment of economically viable projects. 'Even projects that are economically viable are for the good (of everyone) because you want people to be better off,' he says.

'Sometimes the politicians seem able to convince the people that social development is in their best interest and not economic projects. But sometimes the opposite is actually true.'