Work Project Macro

8/7/2019 Work Project Macro

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Name

Isaac Bruce

Date of submission

15th September, 2009

Name of lecturer

Mr. Stephen Armah

Essay Topic

Commentary on Botswanas GDP growth

(1) Draw connections between developments in the country and themes,

concepts, and models discussed in class. (2) Include your ownreactions to developments.


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This paper is the 2005/2006 report on Botswanas GDP growth published by

OECD Development Centre. This report also measures the updated sound

macroeconomic policies adopted by the country over the past two decades.

The author also raises insightful arguments on the impact of diamonds on

Botswanas economy. The author also appears optimistic about future

economic trends in Botswana in harmony with its GDP growth rate of 7-8 per

cent in 2005 and the countrys Vision 2016 plan. Vision 2016 is Botswanas

strategy to propel its socio-economic and political development into a

competitive, winning and prosperous nation1.

My comments on this report have three main directions or objectives. First,

it measures and addresses the impact and future trends of diamonds as the

major export commodity to the economy. Second, it explains the

contribution of each sector to the economy, and its diversification. Third, it

shows how the national output has been allocated to each area accounting to

the national income.

Botswana is said to be one of the fastest-growing countries in the world over

the last 25 years. However, it remains highly dependent on diamonds and

few other minerals. From our knowledge in macroeconomics, the factors of

production (land, labour, capital) and the production technology are the

main contributors to this growth. However, we can also attribute Botswanas

GDP growth to its sound political stability, highest sovereign credit rating and

some other contributing factors.

Diamonds accounts for about 90 per cent of mining, whiles mining accounts

for about one-third of the GDP and 90 per cent of total export earnings.

Therefore the total exports forms over 45 per cent of the total national

1 http://www.vision2016.co.bw/


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income. From statistics, diamonds are the most precious economic resource

for Botswana. However, diamonds are fixed and non-reclaimable resources,

therefore in future, there will be diminishing marginal returns on diamond

revenue. Therefore government should increase its plans on formulating a

long term plan of diversifying its economy from perhaps a single producing

country. The revenue from diamonds can be used to invest in other sectors

which are producing under demand. For example sectors like agriculture and

transport contributes 2.5 and 3.7 per cent respectively.

Botswana has not been constantly stable with keeping a balance of payment

surplus at the end of each year. Real exports grew at the same percentage

with imports at some point in 2005. I believe this is because the country

does not have the capacity to produce all of its goods and services to feed its

citizens. Therefore, the government has to import, which is generally

associated with high import taxes and the effect of global oil prices.

Botswana will be able to maintain a sustained GDP growth and a balance of

payment surplus if it can produce and feed its people.

When there is a high amount of imports, it means government expenditurewill increase and sometimes outstrip exports; there was a balance of

payment deficit, where imports outstripped exports. Therefore it is important

not only to know how much an economy produces but also how much goods

and services it obtains from abroad.

Botswana is having one of the highest HIV/AIDS infections record in the

world. Considering the countrys GDP, huge economic growth and externalposition, there should be a reflective economic development in the lives of its

citizenry to tackle these preventable diseases. In 2005, the main cause of

the balance of payment deficit by 10.2 per cent was due to increased

government expenditure on social services, unemployment and poverty.


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Botswana faced a very high increase in consumption leading to reduced

government revenue. The country was thus not saving and investing. If a

government is not investing, it means its economy is not growing.

Another good indicator of an economys GDP and its growth is the general

income levels of the people in a particular economy. Botswana has achieved

a middle-income status. This means economic growth is reflecting in some

areas of its development like the income earned by individuals.

Botswanas unemployment currently stands at 24 per cent and about one

third of the population lives on $1 a day. There is still a strong and positive

correlation between GDP-growth and the change in a countrys employment

level. But employment, will rise only if economic growth rates are

outstripping productivity gains. However again, a simple, but wrong

argument is that there can be no positive relationship between production

and employment because the output trend in manufacturing is rising and the

employment trend is falling. As a matter of fact, output must increase faster

than productivity to produce a rising employment trend

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BIBLIOGRAPHY

http://www.vision2016.co.bw/

http://www.memo-europe.unibremen.de/downloads/Walterskirchen_24months.PDF

http://www.ingentaconnect.com/content/oecd/

2 http://www.memo-europe.unibremen.de/downloads/Walterskirchen_24months.PDF
http://www.memo-europe.uni/http://www.memo-europe.uni/http://www.memo-europe.uni/http://www.memo-europe.uni/

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Work Project Macro