Macroeconomics of Botswana - Research Paper Example

Introduction The economy of Botswana is one of the success stories of Africa, having changed from underdeveloped nation during the independence time to the middle-income nation at a period of 3 decades. Effective policies of macroeconomics, better administration, effective operating strategies and efficient diamond resources control are the key factors of successful productivity of economy of Botswana. The gross income of about seventy US dollars in 1966 raises to six thousand and five hundred US dollars triggered by diamonds discovery. This paper will discuss the microeconomics of Botswana with specific emphasis on market labor, economic growth, taxes, debts and key factors that impact the economic growth of the nation. Discussion Botswana has been among the top popular world’s economic rate of growth starting independence. Nevertheless, the growth of economy was slow in 2009, with thirty percent decline of industrial sector, after the worldwide crisis minimized the Botswana’s diamonds demand, (Mhozya 88). Even though, the Botswana witnessed economic recovery in 2010, the growth of GDP has similarly reduced. Via fiscal discipline as well as proper management, the country regenerated itself from the slowest economically growing nation and attained a middle-income nation with about sixteen thousand and eight hundred dollar GDP per capita by 2012. Additionally, two main investment services put the country at the prominent credit risk in African countries. Mining of Diamond has stimulated a great deal of economic expansion and presently accounts for over a third of GDP, about seventy to eighty percent of export income and approximately fifty percent of the revenues of the government. The country’s extensive dependence on a key lucrative export was a crucial aspect for increased production of economy in 2009. Tourism, services of finance and, livestock farming and local farming are crucial sectors of Botswana’s economy. Unofficial approximations rank unemployment rate at about forty percent. HIV/AIDS rampancy in the country endangers the better economic prosperity. An anticipated balancing in output of diamond in the future year’s challenges permanent prospects. In 2012, prominent international firm of diamond contracted a ten-year agreement with Botswana to shift Botswana’s sorting of rough stone and division of trading by 2013, from London to Gaborone. This transformation will help support the decline of industry of diamond in Botswana, (Norda?s, Gilbert and Gloria 52). The economic freedom of Botswana ranges to about 70.6, achieving the 30th position of the freest economy in the index of 2013. It has an average score of 1.0 point grater that 2012 mainly because of progressive improvements in liberty from economic corruption and government expenditure management. The country is the second in forty-six nations in the region of Sub-Saharan Africa and has average score greater than the global and regional averages. The economy of Botswana is expanding mainly due to foreign investment fueled by reduced taxes, stability in political structure and climate and an extensively educated labor force. Botswana is a better example in extensive natural resources endowments, (Phirinyane 23). Corruption level is low in Botswana and an independent judiciary enacts agreements efficiently and safeguards property rights. A relatively efficient regulatory environment and open trade policies have underpinned competitiveness, whereas exports of diamond have reinforced effective foreign exchange flows. The department of finance is effectively developed, with a reliable central bank as well as minimal interventions by the government. Even though, the public debts are still low, the administration has attempted consolidation of fiscal to lower increased deficits of the global meltdown. The outstanding external level of debts of Botswana remains low and sustainable based of surpluses of perennial budget and extensive external policies of debts, irrespective of its current increased following the financial and economic meltdown of the world, (Mhozya 102). The financial decline of the world and the subsequent reduction in diamonds demand resulted to increased decline in mineral revenues of the government. This plus the crucial increase in government expenditure contributed to a broader fiscal deficit of about 10.8 percent in 2009 and 2010, causing a higher increased in the public debt of the nation from a GDP of 6.8 percent in 2008 and 2009 to 16.2 in both 2009 and 2010. External debts increased extremely higher from the minimal level of 2.7 GDP percentages in 2008 and 2009 to about 10.8 in 2009 and 2010, but since then, a reducing trend has been witnessed based on the restraint in expenditure and domestic financing reliance of the deficit budget. Following its increased shoot-up from GDP of 8.5% in 2008 to about 23.4 percent in 2009, the debt is expected to reduce to 20.5 percent in 2011. Additionally, debts are estimated to reduce further to GDP percentage of 12.4 by 2015, based in the progressive fiscal consolidation strategies, which emphasize on completion of current projects of infrastructure in progress and reduce expenditure on increased project returns. The labor market of Botswana experiences constraints like increased unemployment levels and mismatch among supply and demand of labor. Studies indicates that inadequate education and training since independence, gender differences in labor market and inadequate opportunities for young people enhance overall rate of unemployment and reliance on assistance programs of the government, (Phirinyane 123). Similarly, inadequate skills and expertise to meet requirements of employment opportunities by employers is a main reasons attributed to youth unemployment due to inconsistency between tertiary institutions’ produced expertise and skills and industry required skills. Similarly, because of inadequate skilled work force to suit employment opportunities available, the government encourages tertiary and other educational institutions to ensure relevant programmes to increase labor market of the country. This is because availability of cheap, comprehensive, expertise, skilled, reliable and technologically up-to-date market labor enhances economic growth of the country. Factors affecting economic growth of Botswana Studies show that growth rate of populations adversely influence economic growth of Botswana. Growth of population is known to greatly affect growth in economy, for instance, strategy of growth of population combined with institutional and changes in policy may endanger economic growth mainly for a nation with nascent economy like Botswana. Economic experts agree that growth of population diverts economic resources from accumulation of capital and savings to recent products and services consumption. The resources diversion from accumulation of capital, services of health and education services may hinder growth of Botswana’s economy. Similarly, others assert that growth of population redirect resources from services of health and education to present expenditures. All these adversely affect Botswana’s economic growth because growth of populations in the era of slow economic development brings about population trap or reduce equilibrium trap level. Some scholars also blame increased growth of population and urbanizations for unstable economic growth. Growth of population can positively affect growth of economy via two fundamental aspects such as technical progress and scale of economies. Economists indicate that population increased result to innovations, ((Norda?s, Gilbert, and Gloria 59). Advances in technology as a result enhance economies of scale and production level, thus increased national productivity. Market size has crucial effects for specialization, for instance, with population increase, the market size increased. Such market increase in turn stimulates specialization that further brings about economies of scale achievement, hence an expansion in the output of the nation. Conclusion Irrespective of initial conditions such as reduced investment by colonial power, drought, famine and other constraints, Botswana is current among the most popular economic achievers in the global record. It is renowned for its advanced, comprehensive, persistent macro and microeconomic policies, effective governance and its industry of governance, as the global extensive value producer. Works cited Norda?s, Hildegunn K, Gilbert Sekgoma, and Gloria Somolekae. Managing Good Fortune: Macroeconomic Management and the Role of Aid in Botswana. Oslo: Royal Ministry of Foreign Affairs, 2008. Print. Mhozya, Xavier. The Specification and Estimation of a Macroeconometric Model for Botswana. Addis Ababa, 2002. Print. Phirinyane, Molefe. The State of Governance in Botswana 2004: Final Report. Gaborone, Botswana: Botswana Institute for Development Policy Analysis, 2006. Print. Read More