What went wrong with Botswana?

What went wrong with Botswana?

 I dedicate this to my brother in law Thabo from Fancistown and who is a graduate of a good commercial tertiary institution in Botswana but with the exception of a couple of internships and short term contracts has been unemployed for five years. He is a very bitter and angry young man whose story is so painfully common in Botswana. May God help Botswana!

If you look at the university enrolment figures for Batswana at universities it is the highest rate in Africa. On average only 8% of Africans of the relevant age group go to a tertiary institution. In the developed world this averages 30% and Botswana, which is the best performer in Africa the number  was around 28%. Those from the international community  are effusive about Botswana’s education success but that is only because they can never bother with details and prefer ‘the big picture’ from Europe and America. In fact the high rate of tertiary enrolment in Botswana  is the starkest testimony to the nation’s utter failure to diversify its economic base and create jobs for the young. This university enrolment figure is as high as it is in large measure because the government gives cash grants to students but there is no relief once they graduate. They have internships but no almost no prospects for getting full time employment  so many continue to study as the only economically rational alternative to returning to the village or starving in town.

But why are there no jobs in Botswana? It is after all the same international community that lauds Botswana for its absence of corruption, for its fine economic policies and its excellent macroeconomic management. But in 2017 with the closure of BCL the country is now more dependent in diamonds for its exports that at any time since the opening of the Orapa mine in the late 1960’s.So what has gone wrong with the country that had so much going for it.

In 1979 President Masire began the FAP ( Financial Assistance Policy) which provided subsidies to those starting businesses that would diversify the economy away from diamonds. He was keenly aware that diamonds are not forever and that without diversification the next generation would have no employment prospects. The program failed completely because of abuse of the subventions provided, outright corruption and because Botswana was a completely uncompetitive . The program was abandoned in 2000 and replaced by CEDA ( Citizen Entrepreneurial Development Agency)

This is where Botswana’s problems began. President Mogae made a fundamental policy mistake. He accepted the advice that  the sort of highly interventionist assistance provided by the FAP was flawed and should be replaced only with  a sop to Batswana entrepreneurs starting out in business ie. CEDA. For the last 17 years there has been nothing that resembles a real industrial policy in Botswana, only empty policy documents. This was in effect a complete abandonment of industrial policy and neither President Mogae nor subsequently President Khama have done anything vaguely looking like a comprehensive diversification policy.

Corruption- what corruption?

What should have been done in 2000 is straight forward enough. The failure of virtually every industry developed under the FAP was a result of the fact that there was no reason to be located  in Botswana and whatever could be made in Botswana and provide jobs could be done cheaper somewhere else. Thus there was no attempt to address this problem of the fundamental cost structure of Botswana and as a result the subsidies would have to continue indefinitely which every beneficiary understood was impossible. The Ethiopians, unlike Botswana,  have tried to directly address their cost stucture. They are providing cheap electricity, cheap water and cheap labour to industry so that the fundamental infrastructure and costs make Ethiopia the sort of place where investors will come without significant subsidies. Instead Botswana tried to solve its water issues with  the North-South water carrier and Moropule B. The former was developed using plastic Corning pipes against all the technical advice of all the engineers and was such a dramatic failure during the recent drought. This was because one very senior politician had shares in the company. Moropule B  construction contract was given to a Chinese company that had never before built such a large power station.  It too was a failure and now the government intends to privatise the project. So corruption  is not a problem in Botswana but if ever there were honest investigations of these two key infrastructure projects then the myth of an honest public service driven by the public good would be exposed. But in Botswana it would never happen because the heads that would have to  roll after such an investigation are very big indeed and they are just too big to fall.

In  2010 I convinced the Ministry of Finance to ask an unthinkable question- why is the cost structure of Botswana so high that people do not wish to invest? And after years of research and a major international comparative study of costs  we found  that the main reason was not transport or even infrastructure though they did matter. The biggest reason  for Botswana firms being uncompetitive was the high cost of  professionals and management in Botswana and not the cost of unskilled labourers whose wages were, on average actually lower than India. We recommended policies that would break the cosy cartels of lawyers, accountants, architects and  engineers and managers that made Botswana so internationally uncompetitive. You could not do this by just training more Batswana, you had to bring in foreigners who had their qualification recognized unconditionally upon arrival because they would gladly undercut their local competitors. But to Botswana’s contented elite bringing in thousands of Zimbabwean and Zambian professionals to compete with them and lower their salaries was simply unthinkable.

When such microeconomic reform is not politically possible then there is a standard but far more brutal macroeconomic tool  that will deal with the same issue of lack of competitiveness. That policy is one of continual currency devaluation until the local prices, including wages and salaries, adjust downwards to the point where the country is internationally competitive and investment begins. But there is no institution that more typifies the contented Botswana elite than the Bank of Botswana. Its main aim is the containment of inflation, and  that it continually argues is its main contribution to the nation’s development. During the last three years of Zuma-induced rand devaluation, the pula has appreciated against the rand and inflation lowered in the country. But it has made Botswana even more uncompetitive ( in dollar prices)  against any of its  neighbours.

Botswana will never be internationally competitive until its elite and its people are willing to pay the very high price for competitiveness. It is not free and the journey will be ugly with no guarantee of success. But the contented elite want nothing of this. They have created what economists call an efficient economy where the country’s diamond revenue is relatively well managed and distributed to them. However,  in terms of dynamics, ie transformation of the country, the economic policies of the last 17 years have been a complete and utter failure.

Lies we tell our children

For years good parents have told their children a story that belongs to another age. ‘Study hard at school,  go to university, get a degree, get a good job and you will live happily ever after!’’ It is a story that was perhaps true in another time but in the 21^st century in Africa  in the age of robots  and automation and Chinese  competition to African industry  it looks more like a fairy story. But this myth is also the basis of Botswana’s development policy as it is through large swathes of mineral rich Africa. Just educate the youth with the diamond revenue and the next generation will create the opportunities that will bring Botswana even greater prosperity. This is the same advice given to mineral rich countries  all over Africa. And when you have temerity to ask the smug representatives of the international community where those opportunities might be, given the pace of automation and the impact of China on costs, the answer is invariably the ‘The market will provide’.

 But the unemployed university  graduates do not believe this. Instead they believe the north and west African version of the 20^th century fairy tale  which goes ‘’go to university, get a degree and then get on a boat to Europe  where, if you survive the crossing , you will  have the privilege  of doing the same menial low paid jobs for white people that Africa’s  ancestors, who were forcibly shipped across the Atlantic, did two hundred years ago”.

These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.