Having attained middle income status, Botswana is struggling to progress further due to the stagnation of its economy. This has resulted in the country facing the middle-income trap dilemma.
The dilemma refers to a situation where a country that has attained a certain level of development finds it difficult to make the leap required to become an advanced economy.
In the 1980s, 1990s and early 2000s, Botswana’s economy was characterised by high economic growth but that expansion has stagnated in recent years.
The economy appears to be stuck, moving nowhere.
The answers to these challenges, according to Standard Chartered Bank chief economist Razia Khan, are, among others, the need for participation of the private sector and implementation of economic reforms.
Speaking on the sidelines of a media engagement session organised by the bank on Friday, Khan said Botswana needs more reforms and liberalisation in mechanisms of doing business to enable it to achieve real growth and transformation.
Khan said to enhance potential output more fully, Botswana’s private sector may need to take over from the public sector as the main driver of economic activity. This is necessary to reduce unemployment as the public sector struggles to do this on its own.
“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,” she said.
She attributed this to lack of investment either by the public or the private sector to keep growth going.
The economist warned that the southern African diamond-rich nation risked being trapped into the middle-income status if it does not act fast.
According to Khan, the current four percent growth rate was not enough to graduate Botswana into a high-income country, adding that its economic base does not support rapid economic growth.
She said greater investment and faster productivity growth would be needed to improve potential output, which has stagnated.
“Special emphasis should be placed on policy decisions and implementation in order to ensure that those aspects play a central focus to the transformation and growth of the country,” said Khan.
She said in pursuing projected growth incomes, the country should not wait for external shocks such as the global economic slump, but should continue to make concerted reforms supported by the country’s endowed labour, capital and current political reforms.
KO/jn/APA