Kabo Mokgoabone
1 April 2008
analysis
To many economically uninitiated, Sir Ketumile Masire did more to jack up the country's economy than his successor, Festus Mogae.
But others who are initiated in economics believe there is a reverse, looking at current GDP performance and other economic indicators.
This brings to the fore the question of currency debates that dominated 2005 over the under valued currency policy that Mogae undertook. This decision made consumers angry with the outgoing president while making the country rich with surplus cash.
The Oxford-Sussex economics graduate Mogae is therefore leaving behind a legacy that only those conversant with economic theories will appreciate.
Masire presided over an economy that was booming and mineral revenues were able to sustain government expenditure while Mogae had to balance falling economic fundamentals and people that voted him into power let alone investors.
Leaving scandals like NDB aside, Sir Ketumile's supporters say he did well during his tenure, with high volume of Foreign Direct Investment (FDI) to the country with major catches like Hyundai that created around 1, 200 jobs and Scania truck builders. Masire was on the verge of bringing US carmaker Ford before he left.
He kept the Pula strong and the currency was nicknamed African Dollar, which made the electorate and investors alike very happy.
It was easier to fill a shopping trolley with grocery for few hundreds of Pula for a nuclear family or to some extent extended families who want to cut on spending. Under Mogae, middle-income families were spending over a thousand Pula to two on food while poor families were worse off.
This is a major legacy that Mogae is leaving behind of devaluing the currency amid world economic recession, which saw many companies relocating to new democracies in the region like South Africa.
On the macro level, devaluation of the currency brought good for the country as it led to current account surplus.
On the other hand, however, other economic commentators believe the devaluation of the Pula has contributed to inflation due to the continued increase of the import bill since Botswana is a net importer of both goods and services.
When Mogae came to power the exchange rate was P4.2 to the US but it has fallen to around P6, 5.
On the inflation front, not much can be blamed on or accredited to the President or government as it fluctuated during his reign. When Mogae came into power inflation hovered around 6.5 percent to seven percent before it shot to over 12 percent after the devaluation. Now it is under 10 percent though it is on an upward trend again. The country's foreign currency reserves have also bloated from US$6.06 in 1998 to US$10 billion in 2007. Devaluation aside, Mogae era brought in changes to the diamond industry because the country now is processing its diamonds home unlike it was done previously in DTC London.
In return, over 3000 jobs will be created this year, as DTC Botswana is now fully operational. What about the sustainability of the industry in the long run? For example, all the 16 sight holders that have been giving licences to cut and polish diamonds are De Beers's clients. This means there are no independent companies that have been licensed to do cut and polish at the DTC.
The situation raises questions about what concessions have been entered into by the Botswana government and De Beers. For example, were there any genuine reasons for the stability of the industry to continue cutting and polishing to be profitable beyond mining concessions twenty years after diamonds have been exhausted? Will both government and De Beers cope with such a situation, if production declines as mining becomes expensive?
The challenge is to see beneficiation beyond mere issuing of licenses to De Beers clients and creating a sustainable diamond and cutting industry that has necessary skills. One would like to see the situation where Botswana's diamond industry is at level of India that has no diamond mining of its but boasts of sound cutting and polishing industry.
Mogae's government has failed to come up with a sound competition policy to define citizen economic empowerment and promote fair play in business.
Instead, the economy has become one huge jungle only inhabited by foreigners to the sole exclusion of locals. For all that is clear is that there is a draft policy on empowerment, and as its name suggests, it is still a draft.
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