Why Economic Centralism Is Not The Right Route For Botswana's Economic Development

In February of 2021, the government of Botswana, through the Ministry of Investment, Trade, and Industry, is to complete the review of the Economic Diversification Drive (EDD), an initiative launched in 2011 to enhance local manufacturing and production by having the government use its purchasing power to procure goods locally.

Government's purchasing power is of course huge in Botswana because of a relatively small and largely undiversified economy. The latest figures show that government continues to be the single biggest buyer in the domestic economy, followed by the mining industry. Commendable as the mandate of the EDD is, which is trying to support the operations of local producers and manufacturers and consequently reduce the import bill, is it the best way to support the growth of local producers and manufacturers and ensure they play a role in economic diversification? The answer is debatable.

The problem with centralist policies like the EDD is that, first of all, they seldom go on to fulfill the mandate they were set out to serve. Since its inception in 2011, the EDD has accounted for only P40.4 billion (or 53%) of government procurement, a pittance compared to the government procurement needed to create vibrant local production and manufacturing industries. 

Secondly, centralist policies cloud market signals because the government decides what industries/sectors remain vibrant. This is contrary to free markets in which the markets decide which industries remain relevant through the law of supply and demand. Clouded market signals mean that through the EDD, production and manufacturing industries in the private sector will seek to serve the needs of government so as to get a piece of that purchasing budget instead of trying to serve the needs and wants of the people.

With regard to the second point, one might argue that because government does procurement to serve the needs and wants of the citizenry, it is technically not clouding market signals. Theoretically, that is true. Government should procure to satisfy the population's needs and wants but in reality, this is very far from being true, bringing us to the third factor of why centralist policies actually impede economic growth. Tenderpreneurship and cronyism.

Corruption in government procurement tenders in this country is an open secret. With that in mind, would it really be a good idea to increase government procurement while the structures for preventing misuse of this government purchasing power are so desolate and in tatters? Wouldn't that just increase the already rampant corruption which comes with tenderpreneurship? Wouldn't that just increase the cronyism which comes into play with regards to government tenders? The answers to these questions are clear as day.

To some people, the COVID-19 crisis and the economic repercussions that came with it make for a strong argument for economic centralism. Centralist policies during the pandemic like the order for companies to not lay-off workers have garnered a lot of support and understandably so as job security was a concern for most people as COVID-19 hit businesses hard.

However, we should not let the pandemic be an excuse for government to enact policies that will prove to be detrimental to the socio-economic development of the people in the long run. Instead of trying to control the economic trajectory of the country through economic centralism, government should instead focus on removing bureaucratic red-tapes, easing taxation, and creating regulatory frameworks that will create an enabling environment for small businesses to scale their operations and contribute significantly to economic diversification without having to rely on government purchasing.

Policies like the EDD, as much as they sound good on paper and are sometimes enacted with the best intentions by government, do more to serve government's PR standing and enrich politicians and their cronies than actually advance the economy as evidenced by their failure in the past to serve this mandate. Policies that liberalize the economy and markets, on the other hand, are always the best route for economic development because they free the economy and prevent it from being used to advance political interests.