Manufacturing hits rock bottom

The report, titled “Botswana Science, Technology and Innovation Policy Review,” highlights a concerning trend: “The contribution of manufacturing to GDP has consistently decreased since 2014, indicating a need for a reversal of this decline.”

According to UNCTAD, Botswana’s manufacturing value added as a share of GDP declined marginally during the period 2010–2013, rising markedly in 2014, only to decline steadily thereafter.”

The organisation noted that one of the contributing factors to this is a major weakness is limited structural economic transformation into manufacturing and from primary production into services.

“Little progress has been made in strengthening the manufacturing sector. A major shift in production has been the steady decline in the share of industry (dominated by mining) and a rise in the share of services in output,” UNCTAD said. It observed that; “This pattern is common in the region, and indicates difficulty in expanding the manufacturing base. The share of manufacturing has increased only marginally, from 5.6 percent in 1995 to 6 percent in 2020.”

UNCTAD said agriculture remains a sector with potential for further diversification, which would also help to improve food security.

“The latter is now a higher priority in countries across the world in the context of greater global food insecurity and a global food crisis. Improving agriculture could also contribute to higher job creation and wage opportunities for low-skilled labour, which would help reduce unemployment, poverty and inequality,” UNCTAD said. It said the accelerating impacts of climate change, combined with growing water scarcity (and possibly drought), will present challenges to agricultural development in Botswana in the future.

Addressing these challenges, UNCTAD said, would require the application of a range of new and existing technologies and agricultural research and development (R&D). The production structure, the organization noted, has shifted towards services without any increased specialization in manufacturing. “Some services can provide useful diversification opportunities that would bring development gains, in particular modern knowledge-intensive services that have high value-added (such as medical, information and communication technologies (ICT), software, architecture, financial services, R&D and consultancy services),” UNCTAD said. It noted that some labour-intensive services, such as tourism that could create jobs for low-skilled labour.

“Botswana’s economy remains heavily dependent on its natural resources and shows a mixed performance in the process of its transformation into a knowledge-based, innovation-driven economy. The export structure is dominated by primary products, with resource-based production becoming more pronounced in recent decades, rising from 83.6 percent in 2000 to 93.6 percent in 2020,” UNCTAD said.  It revealed that low-tech exports have fallen over the two decades, from 3 percent in 2000 to 0.8 percent in 2020, and high-tech exports have stagnated at 0.6 percent.

Export diversification in Botswana is also extremely low, which reveals structural weakness in the economy, and the limited capacity of firms and entrepreneurs to innovate. The development of new export products since 1995 has been limited. The economy was heavily dependent upon cattle at the start of independence, and then on diamonds, before slowly diversifying mainly into services.

UNCTAD argued that Botswana’s slow structural economic transformation is related to factors that have inhibited local productive capacity and the country’s ability to establish competitive local industries, particularly in manufacturing activities. These include, the report said, low levels of productivity growth associated with low skills development, as well as inadequate physical capital and capabilities for innovation. Productivity growth is essential for raising income levels in the long term.

It said since independence, substantial cumulative public sector investments have considerably improved physical infrastructure and reduced infrastructure gaps.

“However, the country’s large physical size and small population pose an infrastructure challenge (for roads, railways, airports, energy grids, water and communications), which is compounded by its landlocked situation, resulting in high transport and logistics costs for goods and people. Deficiencies in infrastructure – particularly in transport, ICTs and energy – also continue to contribute to weak productive capacity,” the report said.

The report found that increased specialization in manufacturing typically occurs in countries that have progressed from low-income through middle-income and to high-income levels through a rapid process of development. It noted that manufacturing generally offers considerable scope for rapid learning, technological upgrading and innovation that can raise productivity levels and drive economic transformation. As with agriculture, the report said, the expansion of labour-intensive manufacturing activities in low- and medium-tech areas, such as textiles and garments, can also help create jobs.

Medium-tech exports have increased moderately from 2.7 percent to 3.7 percent. Within the region, UCTAD said, Mauritius has steadily reduced primary and resource-based exports by developing a mix of low-, medium- and high-tech exports. Outside the region, UNCTAD said, Malaysia provides an interesting comparison: it started from a heavily natural-resource-based production structure before diversifying into more technology- and skill-intensive low-, medium- and high-tech industrial products for export Botswana Science, Technology & Innovation Policy Review.