Ricardo China and Compartive Advantage

China, Ricardo and  Comparative Advantage

Almost 200 years ago to the day the illustrious Scottish economist, David Ricardo wrote a theory that is to this day is taught, almost as Gospel,  to every first year economics student in Namibia, Botswana and rest of the world. In his famous theory of Comparative Advantage there were two countries, Portugal and England and even if Portugal is more efficient at producing say, cloth and wine than England it would be to the advantage of both countries if they were to specialize in that area in which the relative cost of production were lower. Bringing this from the early 19^th century to the 21^st century, even if China is absolutely more efficient at producing manufactured goods, it is in the advantage of both China and America if  China specialized in manufactures and America is services  and agriculture. The upshot is that even if the Americans are less efficient than the Chinese they will still have jobs.

Nice theory, but to theear of the average businessman who actually understands  comparative advantage it sounds like the commercial equivalence of the tooth fairy. But no businessman or economist will tell you publicly that they think that this orthodox theory of trade is simply so much rubbish because to do so would leadto  beinglabelled an ignoramus. If you are better at everything and you are big enough to do so, then you just produce everything and wipe out your less efficient competitors- that is, after all,  the way of the market! Ricardo was, amongst many things a very astute businessman like so many economists of his day. Unfortunately economists today rarely read Ricardo, know little about business and rely on these orthodox theories so they can help the children and the politicians sleep at night.

Ricardo argued that if workers in the city of Liverpool are more efficient at producing everything in comparison to London then manufacturers will simply move to Liverpool and wipe out the less efficient London based competitors.  And yes, the businessman would say that this makes commercial sense. But in  Ricardo’s early 19^th century world moving to Liverpool is not the same as moving to Portugal. Ricardo’s theory which is the basis of all orthodox theory of trade  was based on the assumption that investors would not move from Britain to Portugal which may well have been valid at the time. Portugal was just too alien for the average 19^th century Englishman. Fast forward 200 years and the assumption that investors will not move from one country to look for higher levels of efficiency looks like so much nonsense.

If capital is hyper mobile, as it is today, there is no reason to believe, as Ricardo himself would have argued, that countries will specialize in the area in which they have a comparative advantage. China, a nation of 1.3 billion people has an absolute cost advantage in just about everything and is large enough is perfectly capable supplying everyone else in the world simply because it is cheaper.

The new right in the developed world eg Trump in the US and Le Pen in France have tapped into a deep well of anger amongst the once prosperous high school educated western working man who has seen their real wages fall or stagnate as a result of global trade, automation and fierce competition form  low cost labour. It is these that have been the bulwark of support for the new-right. They know that China is now big enough to produce virtually everything the world needs or more accurately, has been convinced to want and their jobs and prosperity is on the line.

And while modern free market economists have never lost an opportunity to remind the world that globalization and liberalized trade have helped  lift  hundreds of millions of Chinese workers out of poverty, they are less likely to even mention that globalization also lifted their employers from the status of multi-millionaires to billionaires. It is the combined effect of diminished prospects for working people in the developed countries combined with deep resentment of the massive wealth accumulated by those at the top who benefited that is at the heart of the right wing reaction to free trade and globalization.

But even those, like the present writer,  who recognize that freer trade has been of benefit to large swathes of humanity,  the so-called ‘new generation trade agreements’currently being negotiated as the Trans-Pacific Partnership risks giving enormous powers to large firms to litigate against governments that change laws that undermine their profitability. If governments introduce laws on environmental or health matters the investor to state dispute settlement mechanisms allow companies to sue governments for changing laws. This is a step too far as it is a massive intrusion on the right of democratic societies to pass laws that they deem to be in the national interest. This constitutes a shift in power in favor of big business and has little to do with little with any common understanding of a freer trading system.

Unless the comfortable elites of the developed world who have benefited from 35 years of free market economics shift their thinking and start to advocate and aggressively drive a more just and equitable globalization then the writing is on the wall and we are in for trouble. Finally there is starting to be some change of thinking and that very bastion of reaction, the International Monetary Fund  has become open to new ideas about globalization under the leadership of Director Christine Legard and is showing the way about thinking about a new and fairer world order. Change will come one way or another but whether it will be ordered change or follow a period of great human ugliness is yet to be determined.

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

We're not broke - but SACU is broken !

‘We’re not broke’- but SACU is broke(n)!

Last week at the 17th Annual Bank of Namibia Symposium, the Governor of the Bank of Namibia Mr Ipumbu Shiimi, in response to a question from the media emphasized that ‘Nambia is not broke’. For those skeptical souls in the audience who don’t immediately believe everything they are told by people in authority this of course raised the question  of what  does ‘broke’ actually mean. This is especially relevant  when the country is running a record budget deficit of 8.3% GDP and has a current account deficit of what is above 13%.  Normally, ‘broke’  means that you have no more money left and you cannot spend any  more. On that basis Namibia is not broke, it can continue to spend for a while as long as the government continues to borrow in the domestic economy or from the foreign markets as it  did with such a vengeance in the last quarter of 2015. The Governor is right, we are not broke but we are certainly digging an ever bigger hole for us to climb out of when someone in government finally realizes the basic truth that small developing countries cannot indefinitely spend more than they earn.

The Governor defended the government’s position by saying, quite correctly,  that the current budget deficit is a result of a decline in SACU revenue and that government will need to rein in spending temporarily. But even I, a mere professor,  knew in the middle of last year that this decline in SACU revenue was coming this year and certainly if I knew, Mr Schlettwein, the Finance Minister  knew more and knew even earlier. And yet government spending did not decline  to deal with the loss of revenue. 

SACU revenues are what economists call ‘pro-cyclical’ which means that  they fluctuate in line with  the trade cycle and the revenues are paid two years in arrears so anyone who knows what is happening in South Africa will be aware of what Namibia has in store two years later. We are now desperately dependent on the transfers we get from Pretoria through SACU– 33% of Namibian government comes from the largesse of South Africa because the Namibian government could not readily make up the lost customs revenues if SACU collapsed and it had to impose duties on everything coming into the country.

 

This is by no means the first time  as we have had one of these cyclical downturns in SACU several years ago . In 2011 SACU revenues owed to the four BLNS countries ( Botswana. Lesotho Namibia and Swaziland) dipped disastrously as a result of the decrease in the size of the SACU customs pool. This was caused by the global economic crisis of 2009. Swaziland, arguably the country that is most dependent upon SACU  went into  an economic tail spin. What we are seeing now in 2016/17 is a repetition of 2011 with a decline in South African imports which contributes approximately 80% of the revenue  to the customs pool but South Africa being by far the biggest member of SACU only gets 20% of the revenue the share of the pool depends upon the share of intra-SACU imports and South because it imports so little from the smaller SACU countries. The decline in the size of the pool is a result of economic events around the world but also because of South Africa’s very slow growth rate.

Normally well informed sources say that by 2018 the SACU customs pool will have rebounded strongly to ZAR60 billion and, , we in Namibia will be able to go on spending beyond any sustainable levels as we have up to now. Namibia’s fiscal position is now precarious. It has, as its biggest source of revenue, the SACU revenue sharing formula which is not only opposed by the government in  South Africa and has created serious fluctuations in government revenue. The down-side is that if South Africa had its druthers we certainly would be getting much less than we are getting now.

While reforming the basis upon which SACU revenues are distributed amongst its members is politically fraught and will still take a number of years there is another task that finance ministers should address and that is, at least in theory, politically easier. There is a need to for MrSchlettwein and his other ministerial colleagues to reform SACU and iron out the huge year-to year fluctuations of customs receipts by creating a revenue stabilization fund within SACU. That would mean that members would get only a portion of what is owed them in good years and this would be made up in bad years from the Fund. Even if other SACU members did not accept such a proposal there is nothing stopping Namibia from developing a stabilization fund unilaterally.

 

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

 

 

Saving Swapo from the Tenderpreneurs

Saving SWAPO- learning from Nkandla

In the last presidential elections in 2014 President Geingob got some  87 % of the vote in an election that  wasfree and fair,and so how could one say that SWAPO is endangered?The party is at the height of its political power and popularity. But, like all liberation movements, having liberated Namibia from the scourge of colonialism and apartheid the question is what does the party do – how does it rebrand itself in a credible manner given its historic successes and its current popularity?  The development and transformation of Namibia into prosperous  anda fair and just society are clearly the party’s current objectives. But like other ruling parties in Africa like the ANC in South Africa, CCM in Tanzania the party often  develops at least two wings. Some are the old liberations struggle veterans  that went through long years of struggle to free the country and remain true believers. Others as well as newer membership sees the ruling party as a means of assuring tenders and rising in society’s  ranks. With time the old struggle veterans thin with aging and those  are often younger  ‘tenderpreneurs’ will  naturally cometo dominate. It is this development that in the end undermines the political foundations of  any ruling party and for those thinking that  SWAPO’s political position is unassailable it  is worth remembering that on the few occasions that President Kaunda permitted freely contested elections in Zambia,his now defunct UNIP party also got 80% of the vote. 

So how does the party protect itself from the rise of this more entrepreneurial tendency which ultimately alienates itself from the people and those who supported it during the struggle. This political core of the party will, with time, become more cynical about politics and all politicians. Such a tendency has already occurred in South Africa with the decline of the support of the ANC to 53% of the popular vote at the last municipal elections this month. The ANC still has the majority support of the people of South Africa and it may well recover its previously unassailable position once President Zuma finally stands aside. 

It is the rise of the tenderepreneurs inside the ANC and  the corruption and abuse of power in  dealing with contracts, both infrastructural and recurrent, that  has lead to the decline of the ANC’s popularity but clearly it was the involvement of President Zuma in an infrastructure project that directly benefited him i.e. the Nkandla affair that most tarnished his and the party’s reputation.

Paradoxically it is the fact of Nkandla and the ANC’s response to the Constitutional court’s ruling on the Public Protectorthat has assured its survival, at least for a while. If one can summarize the politics of the current situation. President Zuma is in effect  historyand will shortly  retire to Nkandla that will remind him daily of his demise.  And his replacement is widely expected to be  CyrilRamaphosa  a genuine hero of the anti-apartheid struggle but more recently  known as  ‘Comrade Billionaire’( in rand) . Whether Ramaphosaeventually comes to power and takes the ANC further down the tenderpreneurial route is to be seen and if he does then in a few years 53% support received in the municipal election will look pretty good rather than a demonstration of  the ANC’s weakness.

This raises one question of how should SWAPO save itself from a similar fate. The only way to do this is to weaken the tenderpreneurial wing of the party by decreasing the ability to introduce expensive, absurd and utterly unnecessary infrastructure projects. The World Bank has estimated that $92 billion per year is needed in infrastructure spending throughout Africa to bring infrastructure up to an acceptable level. This will be a great boon for those seek to prosper from their involvement with these projects and yet the World Bank, which will also benefit greatly from the massively loans that will be needed has been completely silent on how to manage the corruption that will surely follow.

The Nkandla affair is something that we will see  a great deal more of in future, an infrastructure projects that benefist specific individuals. Had it not been for the Constitutional  position of  ‘Public Protector’ and a Constitutional Court that upheld her authority Mr Zuma would not be forced to repay the non-security parts of the public expenditure on his retirement home. Had this not occurred then the ANC would have faced an even more frustrated electorate. Of course no-one should underestimate the personal qualities of Ms Mandosela herself who had the guts to tell the truth to those in power.

The management of public expenditure on infrastructure is probably Namibia’s greatest economic challengein the coming years. How do we stop folly such as $2 billion for the construction of a new parliament without young people having to go to the street each time?.Namibia needs new institutions that will keep infrastructure and other expenditure sane and in check. The first institution is an ‘Independent budget office’ which should review such infrastructure independently and make public pronouncements through parliament as is done by the Congress in the  USA. Second, the creation of a constitutional office equivalent to the Public Protector in South Africa will ultimately provide a defense of the public against abuse those who would use the state for their personal ends. 

President Geingob would set himself apart from all those who preceded him if he were to go to the people of Namibia and ask for a constitutional amendment that would weaken the power of the tenderpreneurs and bring more checks and balances into Namibia’s economy. Such an amendment to the constitution that would protect the people and decrease the President’s  poweras well as  those around him. But it would guarantee President Geingob’s  place in Namibia’s history as a wise leader who would do what was needed to protect Namibia against the plunder and folly that will otherwise go unchecked in the age of tenderpreneur.

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

Advertising Globalisation in Africa

Advertising Globalization

In Africa as you turn on Sky News an advertisement by DHL, the global courier company extols, unsurprisingly, the virtues of open trade. Bored,you turn to CNN and suddenly there is a very similar sounding advertisement from Samsung extoling the virtues of borderless trade. This is a new and very sudden change in advertising strategy from these great transnational companies that normally targets competitors like Apple or UPS. Now they are selling ideas as they have come to understand that their profitability is  now more seriously threatened by the ideological shift against globalization that is occurring throughout the world than by what any competitor can produce in direct competition with their own products.

What has happened that suddenly large transnationals feel so threatened that they need to devote considerable resources to ‘educate the public’ about the virtues of globalization. For an entire generation from the election of Presidents Reagan and Margret Thatcher in the UK in 1979/80 there has been a global consensus that that open global trade was in everyone’s interests along with low taxes on the rich, small government and an elimination of regulations was a free market formula that was unassailable part of the successful Anglo-Saxon model of economic management.

But suddenly thisfree market consensus looks like it is about to dissolve with the rise of Donald Trump in the US,Marine Le Pen in France, UKIP and  theBrexit vote in the UK along with a host of other minor right wing parties throughout Europe and Asia the consensus of the free market economists that free trade was in everyone’s interestis no longer a consensus. It is the right and not the left of the political spectrum that has more correctly gauged the mood of the electorate and is, at least in rhetoric the greatest single threat to the globalization consensus. This is what makes the transnationals so jittery. The Republican party, the UK conservatives and even the extreme right in Europe could in the past assure their patrons in these companies that come what may the global economy would remain open for business. And yet now these allies now  appear to be the greatest threat to their prosperity

 The last four decades has seen the change in the distribution of income in developed and developing countries towards those that are rich. Elites in developing countries in Africa have been enriched by their place in the global value chain but Africa still, despite empty rhetoric from capitals produces nothing but raw materials and imports consumer goods from the developed world and the BRICs.

In all fairness to the free trade economists, none, not even its most ardent supporters have ever argued that there would not be losers from free trade. They only argued as long as the winners could compensate the losers then free trade was apositive development. But the operative word was ‘could’ and not ‘should’. For many western workers, who are the bulwark of the new right wing anti-globalization consensus, globalization and rapid technological change caused by the ICT revolution have been a personal disaster. They have moved from income security in the 1970s’ and 1980’s to feeling increasingly vulnerable with the rise of China, paid technological change and global trade now. Workers in the developed world were not compensated for the impact of globalization. Globalization gave them cheap goods at Walmart and that was widely seen by policy makers as being enough. Importantly the last 30 years saw the return of China to its rightful place in human history as the world’s largest economy and this process alleviated the poverty of hundreds of millions of its people.

This was of course cold solace to the European and American working man who has seen growth and their standard of living slowly ebb away over time. But there was one other important beneficiary of these global changesand that was those who owned, traded and financed the Asian companies that increasingly produce everything that the world now consumes. Aided by tax laws in Europe and North America these elites have used the system of tax havens in in North America (e.g.  Delaware) and the EU (e.g. Luxemburg, Switzerland and the City of London) as well those in developing countries to avoid or evade their tax obligations which would enable governments to pay compensation to those who have lost out.

In time the transnationals will get better at trying to sell the message of ‘globalization good, economic nationalism, bad’.But right now their advertisements on Sky and CNN look utterly absurd, like they are preaching to the converted, speaking to those who can afford cable TV and are the beneficiaries of globalization rather than speaking to the ‘peasants’ directly. But it is not the message that needs to change but an understanding that the game is up, and those who have not benefited from the dramatic economic changes of the last generation have metaphorically, ‘gone home to get their pitch-forks’. Without serious policy change that better distributes the opportunities and benefits of global trade and technological change we will see a repetition of the closure of this second age of globalization. The first age- at the beginning of the 20^th century came to a crashing and disastrous end a century ago with the beginning of World War I.

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

 

Happy Birthday Botswana - What lessons from Namibia ?

Happy Birthday Botswana– what lessons for Namibia?

Last Friday Botswana turned 50 and celebrated its independence from Britain with a justifiable and giant party throughout the country. Botswana, Namibia’s closest neighbor, at least economically and politically has much to teach the rest of Africa and we have much to learn from both the positive and negative experiences of   that country. The country is hyped as the least corrupt country in Africa and based on observation of countries in the region, this may well be the case but it does not mean that Botswana does not have a gradually worsening corruption problem. Botswana has much to be proud of from its record as a country in what was at independence in 1966, in a turbulent and  war torn region.

Botswana went from being amongst the world’s poorest countries at independence with a GDP/capita amongst the lowest in the world ( about $70/capita in the late 1960’s) to an upper middle income country with a GDP/capita in 2015 of USD7,080. The cynics quip that if any country of two million people had 20 million carats of diamonds to export every year for 30 years they would also be rich.It is true that Botswana was  blessed by nature.  It not only found the huge Orapa diamond mine in 1967 but this was followed by the fabulously rich Jwaneng mine, much touted as the richest piece of  real estate on earth. This was in 1972 and is today the richest mine on earth where 10c of operating costs will earn. Botswana is uniquely blessed with not one but two of the richest mines in the world.

But the diamonds themselves are not enough to explain the huge rates of economic growth experienced by Botswana since independence.  Would any other country have managed that much diamond wealth as well as Botswana had?  One need merely compare other very resource rich countries in Africa and the record has been very poor. In oil rich Nigeria  40 years of  huge oil exports has resulted in a country where the vast majority of the people live below the poverty  and are getting poorer. It is estimated that almost 100 million people living on less than a $1 a day, despite economic growth, statistics have shown. The Nigerian National Bureau of Statistics said 60.9% of Nigerians in 2010 were living in "absolute poverty" - this figure had risen from 54.7% in 2004. Poverty rates in other very resource rich countries like Angola and DRC remain much higher than in Botswana.

What makes Botswana truly unique is the quality of the early political elite which remained wedded to ideas of good government, peace, economic stability and the development of its population. Where Botswana was truly blessed was not in its diamonds but that it had one of Africa’s true giants as its founding father of the nation. Sir SeretseKhama was a towering figure committed to high standards of good government not found in other parts of Africa. There was no Mobutu, Mugabe or Dos Santos family which used and exploited the nation’s wealth for their personal benefit and that of their supporters. Sir SertseKhama, while certainly no angel, was a far superior political leader to almost all his African contemporaries. Huge amounts of diamond revenue were invested in developing infrastructure, educating the population and providing good health. Botswana had an exemplary record for public health.  Moreover, while Botswana is far from any understanding of a Jeffersonian democracy and never was, there was always political stability. The army stayed in the barracks and over 50 years there has been no illegal transfer of power. Importantly there was one dominant ethnic group, the Batswana which make up 80% of the population.

But recently not all has gone Botswana’s way. The last decade has seen economic growth rates stagnate as well as the complete failure of government to escape from total diamond dependence. Indeed it can be argued that Sir SeretseKhama’s job was the easy part of its history. He took the nation’s diamond wealth and invested heavily in the human and physical infrastructure that was needed for transformation from an impoverished to a rich country. It was what followed, the period from the founding father’s death in 1979 to 2000 under the leadership of his deputy  SirKetumileMasire that was a watershed in the nation’s history. During this time, President Masireintroduced the Financial Assistance Policy (FAP) which tried in vain to diversify the economy away from its total diamond dependence by providing massive subsidies to new industries in much the same way as Namibia did with Ramatex. As long as the subsidies continued, the industry continued to operate and provide jobs,but when the government finally abandoned the policy in 2000 under the leadership of Festus Mogae, predictably the subsidized industries collapsed one after another. Unfortunately Festus Mogae and his successor, SertseKhama Ian Khama, son of the founding father, had no idea of how to replace the FAP and how to put Botswana on a path to industrial development. They replaced the FAP with a policy of providing small hand-outs to local business which was equally ineffective. They neither had the will nor the vision of leaders such as Rwanda’s Paul Kagame or Ethiopia’s late Prime Minister Meles to impose the discipline needed to achieve real international competitiveness.

But as Batswana wakes this week with a giant  case of ‘bableass’ (hangover) from the party they have just had, a future of jobless economic growth lies ahead of them. Students graduating from the University of Botswana, like their Namibian counterparts are facing prospects of ever longer periods of joblessness and many wonder why their governments bothered investing in their future. The old growth model that was the basis of the prosperity of Botswana and Namibia where the government had the revenue from the diamond mines to continue to employ legions of university graduates has come to an end. If they are unable to get real growth and diversification in the private sector the stability that was their foundation of the current prosperity will evaporate as was the case the with Tunisia. 

The key lesson, if there is one is that peace, order and good government are vital to prosperity but they are certainly not enough. The road to transformation must be defined by each country and needs to be defined by the people and those who lead. The key is to recognize that the government can no longer be the main provider of jobs and prosperity in future as it was in the past. But the aggressive policies pursued with such vigor in Ethiopia and Rwanda and needed to make Botswana and by extension Namibia competitive economies are not being pursued by government. It is politically easier to address short term issues with small band aids of money but only sound policy aimed at ensuring that investors want to invest in the country and create a dynamic private sector will get results. That involves government actually listening to the views of the private sector and taking them on board when formulating policy. This is less and less the case in both Botswana and Namibia.

These are the views of Professor Roman Grynberg and not necessarily those of his employer the University of Namibia.

Stiglitz in Namibia

Economists at 10,000 metres

It is said in Arabic that when the king hires a poet he always chops off his tongue. Poets are notoriously difficult and capricious people and are hence liable to say dreadful things that neither the kingnor his court wish to hear. And even if the king is prudent he canmake a mistake in his choice of poet. Of course the broader understanding of this Arabic aphorism was made very clear at the UN where bureaucrats arepaid the sort of stratospheric salary that most people in Africa only dream of. In the UN one was constantly reminded that you do not speak your mind because you had what UN staffers called ‘the golden gag’.

Economists, unlike poets,are less prone to capricious behavior and any good and prudent king can usually choose one based on his writings with little potential of him saying anything uncomfortable or that which he does not wish to hear.  Once, when I was working for the Commonwealth Secretariat in London I commissioned a brilliant Nobel Laureate named Joseph Stiglitz to work for us. We asked him to prepare a report on how the international community should close the Doha Round of negotiations at the World Trade Organization. Having read much of Stiglitz’s work one knew pretty well what the results of the report would be. Of course one of the truisms of all consultancy is that you never rehire a consultant who surprises you with his recommendations. A surprise is a sign of your incompetence as a bureaucrat. And yes, it also means exactly what you think it means- consultants are by and large only hired to reconfirm and provide further evidence of your own prejudices.

Professor Stiglitz flies a great deal and would almost certainly have more frequent flyer points than Santa Claus. He is paid well by his clients and he flies and sees bits of the world where various leaders wish to have his sage advice. The beauty of the flying around the world  at 10,000 metres is that you can get a really broad world view of things. The minor details of specific small places can be left to mere minions to address.

Last week at UNAM with the great man discussed the government’s plan to industrialize Namibia. I argued what I have time and again in similar discussions in Namibia and Botswana. Industrialization won’t work in Namibia, not because I don’t want it to work, but because of the economic fundamentals. The rules of globalization may be utterly repulsive to many but they are disregarded at the nation’s peril. Namibia, like neighboring Botswana, is a very high cost location to produce anything. There is simply no reason for business which has a choice to locate here. Ramatex has failed and diamond beneficiation is failing for the very much the same reason.Until Namibia addresses the reasons for its high cost structure and low productivity then all industrialization is very likely to meet a similar fate as diamond cutting and Ramatex.

Professor Stiglitz’s response to this line of argument was apparently quite reasonable. He countered that if you drill for oil and fail twice do you stop drilling or continue to look? The obvious retort is that if one does not learn from past mistakes and you continue to drill for oil in the same place you will get the same outcome. This is essentially the situation in Namibia. The reason why Namibia and Botswana are so expensive is because of the very high cost of management and professional staff. The only way to break the high cost structure is to bring in competition from skilled professionals from throughout Africa and even Asia. Despite loudly singing the AU anthem at meetings, any such suggestion is seen by Namibian officials and politicians as pure heresy. Allowing in the ‘makwerekwere’, even on a limited quota basis, get responses across southern Africa like one gets when on uses very bad language in church.

In the final analysis no amount of glossy policy papers and advice from Nobel Laureates will change the facts on the ground in Namibia. The costs of production are too high and until the government develops a real policy that will actually address this most fundamental of constraints to investment all the talk of industrialization is simply, as the Zambians so eloquently call it, ‘wayawaya’. Addressing this takes something few governments have and that is the steely will to look their people in the eye and tell them the truth about what really stops investment, growth and prosperity. Psychologists will tell you that recognizing a problem is half the battle to solving it. Not so in economics. The price of solving this problem is the political cost of imposing a high economic burden on one’s own people in order to transform the nation. In most countries this is politically too expensive and the very reason why countries may grow but don’t ever develop and transform.

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

Palapye Follies

Half way between Botswana’s two biggest  towns of Gaborone and Francistown lies the otherwise unremarkable village of Palapye. It has become a common place to stop for coffee en route to Botswana’s ‘north’and  is also the cross roads to Serowe, which leads to the  Orapa diamond mine and eventually the Okavango delta. But Palapye is more than just a physical cross roads, it is also a metaphorical cross roads between what was once a successful administration and increasingly failed set of policies. The BagammaNgwato (or more commonly Bamangwato) chieftaincy has been dominant in Botswana’s affairs  for as long as anyone can remember and is the chieftaincy of the current president Major General Seretse  Khama Ian Khama and his illustrious father Sir Seretse Khama, the father of the nation. Both Khama the younger and the elder were kings of the Bamangwato.  Three of the four presidents of post-independence Botswana were Bamangwato.

It would then not be surprising that the Bamangwato royalty and elite would tend to concentrate so much of the development of Botswana in and around their traditional heartland but in Botswana that concentration has resulted in a strange anomaly that makes Palapya worth a stop if one is interested in what is widely seen as the ‘least corrupt country in Africa’. Palapya and its infrastructure projects stands as testimony as to what Botswana’s is now doing with its massive diamond wealth. Palapya is a living thriving testimony to folly, ineptitude and probably corruption.

Taking a tour of Palapya’s infrastructure is a fascinating lesson of what can go wrong when policy making stops being based on sound analysis and the most basic question of whether a project is in the nation’s best interests, to one where infrastructure policy is developed is determined by the ‘Economics of 10%’ ie how much of a kick back one can get. 

If you are travelling from Gaborone north then the best place to start is the Botswana International University of Science and Technology (BIUST) . It would seem in this day and age when the entire international community is telling every developing country to send ever more children to university that building a second and technical university is somehow a bad idea is almost heresy. But given the jobless growth in Botswana and when one considers that Botswana already has one of the most expensive post-secondary educations system in Africa then perhaps spending another P500 million on  the first phase of the BIUST construction might not have been prudent at the time it was begun in 2009. This is especially so given that graduates from the nation’s other university , the University of Botswana, are finding almost no employment and are, in ever larger numbers surviving  through low paying internships.

Continuing north is the now infamous power station , Moropule B. This was a USD 1.7 billion World bank/African development bank/ China funded project that was designed to be completed by 2013 and was intended to ween Botswana from it’s almost complete dependence on electricity imports from South Africa. The project never worked properly because those in power decided to choose the company which ultimately built the power plant, ChinaNational Electric Corporation,   a company which had never built a power station as big as this. The then Chinese Ambassador to Botswana, Ding Xiaowen, in 2009 had reportedly advised  then Minerals and Energy Minister Ponatshego Kedikilwe that CNEC was not qualified for the job and yet Kedikilwe still went ahead with the company.  The ambassador suggested that there were other Chinese firms tendering that had considerably more experience in such projects. The project has been a complete disaster and the Minister of Minerals, Mr Kitso Mokaila , has recently mooted the possibility of selling the power plant to the private sector while still talking of renewing the old power plant at Moropule A.

The most disastrous piece of infrastructure in Palapye is not to be seen but is under the village. The North South Water Carrier I constructed in the 1990’s was a pipeline that was supposed to bring water from the relatively water rich NE part of Botswana in the Limpopo basin to the water poor capital of Gaborone. The only problem was that someone decided to build the water pipeline with  fiber-glass pipe, which according to water engineers, is a complete no-no for high pressure water transmission which is almost invariably built with steel and concrete.  It appears that the well know reason why fiberglass was chosen was because one particular head of state, who shall remain nameless to protect the guilty, had financial interests in the company which built the fiber glass pipe. The North South water carrier cost USD 1.2 billion ( P12 billion at the current exchange rate).

In the current two year drought in Botswana where the Gaborone dam is empty and the capital relies on the North South water carrier it fails regularly and Gaborone sits without both electricity and water. The government is now building North South Water Carrier II which will bring water from the Dipthong dam through Palapye to Gaborone. Hopefully this pipeline which is scheduled to be completed by 2020 will be made of sturdier stuff.

But the Palapye follies do not end with the power station that has never worked at capacity, the pipeline that does not carry water much of the time or the university that will add to the next generation of Botswana’s unemployed. Travel further north and at least two other infrastructural disasters loom on Palapye’shorizon. The oddest is the huge semi-finished tower and factory structure that was supposed to be part of the country’sonly glass factory. This was a project that was developed by the Botswana Development Corporation and is a monument to failed beneficiation and to the inept gaggle of policy makers who ran the institution before they were removed.

Botswana policy makers, reasoning that it has all the basic ingredients in country for making float glass(sand, soda ashdolomite,limestone, andsaltcake) and hence a factory seemed an obvious beneficiation exercise. The only missing ingredient was good governance. The BDC contracted with a Chinese company Shanghai Fengyue Glass which, according to a parliamentary report that was subsequently suppressed because the Minister of Finance, Kenneth Motambowho was at the time the MD of BDC sued parliament and had the report suppressed. The building contractors were fully paid before the contract was completed and millions were lost. The total is estimated publicly to be about P1.5 billion though the initial cost of the plant was P800.

Travelling further north along the main road to Francistown past the ghost glass factory is, on the right, is the regional police station at Palapye which stood empty for two years because of gross construction errors and stands are stark testimony to the nation’s gigantamania. It is a huge three story building with scores of police houses and recreation facilities. The total cost of  construction was P150  million in 2014. Given the  enormous size of the police facility one could believe that  the Bamangwato area which it serves was in the midst of huge crime wave. The size of the police station is large even by Botswana’s standards and remains largely empty at present.

The most interesting thing about Palapye is not the concentration of failed, foolish and irrational   projects in such a small village but the fact that despite the billions of pula that have been wasted, the international community, which funded so many of these, continues to religiously repeat the same dogma about Botswana being well managed and having low levels of corruption. This is in the face of so much  mounting evidence to contrary which is concentrated in such a small place. It takes a three hour drive from Gaborone to see this litany of  failure and malfeasance that is found in Palapye.

Ideas frequently outlive the circumstances that create them.  While it was once true that  Botswana had limited corruption and good infrastructure implementation under Sir SeretseKhama, but things have gone downhill and few Batswana in Gaborone who now believe there is such a thing as a major (or even minor) project that is implemented without a back-hander. But Batswana will say nothing of all this because they know that the law is not meant for the rich and powerful and they will get away with what has been done in Palapyeand elsewhere with complete impunity. And as all Batswana know from their own Tswana metaphor that, ‘if you complain too much the lions will eat you’.

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