The wholesale and retail sectors have demonstrated remarkable growth from 2006 to 2022, consistently surpassing potential output as measured by various analytical models, according to researchers at the Ministry of Finance and Development Planning.
The study, titled “Time Series Estimates of Botswana’s Potential GDP, Potential Growth, and Output (2006-2022),” conducted by Bakang Sebika and Bosa Sebomo from the Ministry’s Research Department, also highlighted robust performance in the manufacturing sector, which maintained levels above its assessed potential throughout the period. However, the construction sector lagged behind, failing to exceed its potential output when evaluated using the BP filter.
“On average during the period under review (between 2006 and 2022) both the manufacturing and wholesale and retail sectors have been above potential output as assessed by all the various output measures in this note. The exception to this pattern is the construction sector, which did not surpass its potential when evaluated using the BP filter,” they said.
However, Seboka and Sebomo indicated that while all of the major non-mining sectors have been on an upward trend, recently they have been operating below potential with the exception of the wholesale and retail sectors.
“This is generally anticipated due to the construction sector’s limited implementation capacity challenges, which have resulted from slow budget execution of projects. In the case of manufacturing, the issue is typically linked to the country’s low productive capacity in manufacturing industries, whose intermediate inputs are mostly imported,” they said.
Overall, the researchers found that a general picture is that the performance of the private sector remains below productive capacity.
“This suggests that efforts to promote growth in the non-mining sector/private sector have not really achieved the intended objective with output gaps that are close to zero while some of the major sectors remain below potential,” they said. Seboka and Sebomo said much of the sub-par performance is associated with structural rigidities in the economy.
“In this respect, there is need for more effort to be put towards accelerating structural reforms beyond current efforts. These include faster implementation of value chain development initiatives around export-led growth and improving performance of the manufacturing, agriculture and water & electricity industries,” they said.
Sebika and Sebomo said, “Privatisation of some key sectors in the agriculture sector, including adoption of modern farming techniques such as those highlighted in the new Temo-Letlotlo agriculture programme can help ascertain resilience and promote commercial business in the agriculture sector.” They said there is a strong need for the development of growth-enhancing infrastructure, as prioritised in the Transitional National Development Plan, on the back of improved capacity in the construction sector as well as improvement of capacity constraints within the utilities industries.
Comparing the performance of the non-mining non-government economy over the period 2007-2022 broken down in 4-year averages to better understand short-term movements, the researchers said data suggests that generally actual and potential GDP has slowed over the years.
It also shows that non-mining real GDP growth was above potential for the two (2) cohort samples mainly driven by the length of recovery from the Global Financial Crisis but remained below potential in the more recent years (2015- 2018 and 2019-2022).
Broadly, measures of the output gap have been negative, indicating that the performance of the private sector has been operating below its capacity. “However, during episodes of booms contrary to the norm when the output gap is above zero, inflation was rather falling. This suggests that there may be other factors affecting inflation externally, compared to domestic factors. As a measure of inflation, the CPI includes non-tradeables, domestic-tradeables and imported tradeables with the following weights; 42.29 percent, 15.46 percent, and 42.26 percent respectively,” Sebika and Sebomo said. They said the latter consists of commodity items such as fuel and food which are mainly influenced by external factors.
