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Manufacturing could lift decade-long wage stagnation - Report

Economists are calling for a policy push to boost the growth of the manufacturing sector, which they say will help address the falling Labour Share Income (LSI) in the country.

LSI represents the share of overall national income or GDP paid to employees in the form of wages or related social contributions or benefits financed by employers. As Botswana grapples with high inequality, more attention is being paid to the way in which income generated in the economy is divided between wages (return to labour) and profits (return to capital).

According to Econsult’s first quarter economic review, LSI in Botswana has been sliding over the years, being recorded at 56.1% in 2004 and 36.4% in 2015. The indicator reached its lowest level at 34.9% in 2014.

Real wages have remained almost stagnant over the years, experiencing annual average growth rates of just 0.5 percent between 2004 and 2015. Over the same period, the annual average growth rate of formal employment was 1.5 percent compared to the 7.3 percent real growth rate of capital stock.

Manufacturing, Econsult’s researchers believe, could boost labour’s share of the national income.

“Manufacturing is reasonably labour intensive and helps contribute towards job creation. It also pays higher average wages than many other sectors,” reads the report.

Researchers said manufacturing has the highest labour share of income of any economic sector and is one of the few sectors that have experienced growth in the LSI between 2004 to 2016. According to the latest LSI, manufacturing contributes 43%

to total LSI, followed by agriculture with 22%, construction 18%, transport and communications 17%, social and personal services 15%, finance and business services 12%, trade, hotels and restaurants 10% and mining with eight percent.

Further the review state that manufacturing carries an advantage over service-led industries as it provides a clear well-defined pathway towards taking the country from a middle-income status to the high status.

The researchers called for increased investment in the manufacturing industry, which they said would have a positive effect on the aggregate labour share of income in the country.

“Manufacturing strengthens the export-led growth that is necessary for sustainable economic development along with providing a tried and tested development pathway,” the review reads.

Since 2011, formal employment has not had an annual real growth rate of capital stock, which has been steady and positive between six percent to 10% from 2005 to 2015, whilst real wage growth has fluctuated but remained below that of capital stock for all but one year.

“These trends imply that even with a constant rate of return to capital, the rise in the relative quantity of capital to labour would result in the capital share of income rising and that of labour declining. However, reversing this would require faster growth in employment and real wage rates,” the report reads.




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