Moving out of the middle

How Botswana can escape the middle-income trap

Having attained a middle-income status, Botswana is struggling to progress further due to the local economy slowing in growth.

A Standard Chartered chief economist for Africa and the Middle East, Razia Khan says in the 80s, 90s and early 2000s, the local economy was characterised by higher growth rates.

However, Khan, who was addressing local media this week, highlighted that after achieving the middle-income status, the average growth rate trends in Botswana slowed.

“Notwithstanding, the fact that if were to compare Botswana to SACU neighbours, Botswana’s growth has been more impressive,” noted Khan.

According to Khan, the main question now is what the country needs to achieve growth acceleration, which she warned would not be achieved overnight.

“In Botswana part of the problem is two-fold. Potential output has been trending down in part because of what economists refer to as poor factor productivity,” explained the chief economist, adding part of the reason is because there has not been much investment by either the public or the private sector to keep growth going.

However, compared to its peers who find themselves trapped in the same status, Khan feels the fact that Botswana has the lowest public debt to GDP ratio can propel the economy to greater heights.

“In Botswana, latest statistics suggest that the ratio is around 20 percent. This is a good starting place; it is success on which the country can build the future!”

Despite this, Khan stressed that the current economic model, where government has been the engine of growth, is not sustainable and will not take the country anywhere.

“For Botswana to get to the next level, it will need a higher potential growth rate, higher investments. Government cannot do that on its own! So, the private sector up until now has been heavily dependent on government,” she said, adding that if government expenditure is high, the private sector flourish but when government spending goes down, the private sector suffers.

Khan further stated that Botswana has not succeeded in creating diversity in its economy base because the private sector is still largely dependent on government.

“And this is the key economic challenge for the country, the growth model has worked very well for Botswana so far – it’s historic growth levels speaks for itself. But in term of the challenges the economy is facing right now, Botswana is going to need a broad based model,” she emphasised.

Khan said for the economy to grow to high levels, it will need an increasingly vibrant private sector that can create jobs.

“All these things are still within reach, but more importantly, we have seen reforms being initiated by government that we are very optimistic about.”

Though at initial stages, Khan said if there is consistency in building these reforms, then she has no doubt Botswana will be able to upgrade its income status to the next level.

Indeed, Khan is confident diversifying the economy can be achieved and suggested that areas like the tourism sector should be fully exploited to fulfill the potential it has.