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The role of education in economic growth


Introduction
In Botswana, education has, through the years, received the largest share of the government budget. In the 2014/2015 budget, for example, the allocation to the Ministry of education and Skills Development was P9, 26 billion or 28 percent of the recurrent budget, an increase of P1, 05 billion or 0.3 percent over the 2013/2015 budget. Invariably, the expenditure on education raises several questions.


Should the Botswana government really spend so much money on education? Is the Government getting a good return on this type of investment? What should be the basic strategy of the expenditure on education growth? What really is the role of education in economic growth? This article examines the role of education in economic growth and addresses some of these questions.


How education enhances economic growth
Economists have identified three ways in which education enhances economic growth; firstly education raises the efficiency of the labour, which in turn raises labour productivity and economic growth. Second, education induces innovation and technological progress; these factors which enhance economic growth.

Thirdly, education facilitates the acquisition of foreign technology. It is asserted that presently, new technology is generated mainly by the developed countries in Europe and North America. Once created, the new technology is then diffused worldwide through different channels, the major ones being international trade and foreign direct investment. However it is argued that a country must have absorptive capacity before it can successfully acquire foreign technology and this enhances economic growth.


The importance of education in the acquisition of foreign technology has been emphasised. It is observed that modern economic growth depends mainly on the international transfer of technology, which subsequently depended on education. The economic growth of Europe and North America has been explained by the fact that masse education was already fairly well established by the early nineteenth century in England, France, Germany, and the United States of America.


Quantity versus quality in education
The quantity of education is measured by the student enrolments and years of schooling. This has been the general focus through the years and it is an approach government by the assumption that the more enrolments ad years of schooling, the higher the economic growth rate., However, three basic problems have been identified in this approach, First the amount of knowledge that students gain in a year varies across countries, it is higher in some countries than theirs. Secondly, schooling is not the only means of acquiring skills. Rather skills can be acquired at the workplace from family and peers. Thirdly what really matters for economic growth is education quality and not quantity.


Quality of education is measured by what students learn that is the cognitive skills- basic mathematics reading and writing skills. These skills are considered to be more significant for economic growth than the mere quantity of education. Since schooling and learning are not necessarily joint outcomes, we need to ensure that students learn when they are schooling. Schooling is about showing up for classes while learning is about acquiring knowledge that makes a person functionally literate.


The case of Botswana
Figure 3 shows the trends in student enrolment in Botswana at all levels of education during the period 1974 to 2007. On the other hand, Figure 4 shows only the enrolments at tertiary institutions namely the University of Botswana and vocational and technical colleges. Clearly from these figures, there has been a substantial increase in student enrolments in Botswana. This means that the quantity of education has risen in Botswana and therefore is how to enhance quality of education.


As expected primary education has highest enrolment of students; followed by secondary; and then tertiary education. Because, at any given time, most students are in primary school, education quality should target primary schools. Targeting quality at primary school level will, as they say produce the greatest good for the greatest numbers. It will lay a solid foundation for higher levels of learning and reduce the attrition at secondary and tertiary levels.

Why? This is because “children must learn how to learn” Precisely the specific policies that can improve education quality in primary school include incentives for primary school teachers , reducing the student teacher ratio by increasing the number of teachers, improving discipline updating school curricula and re training of teaches , improving testing tools and procedures. Thus in the 2015/2016 budget, the Government of Botswana has allocated P644 million for operation costs of teaching staff and P235,83 million for in service training.


 The gap is unnecessary because the skills acquired from vocational and technical training are required for enhanced economic growth. Mupimpila and Narayanu (2009), for example, find a positive and significant impact of vocational and technical training on economic growth in Botswana.


In conclusion, we to turn to the questions raised at the beginning of this article. Should the Botswana government really spend so much money on education? Is the Government getting a good return on this type of investment? To answer these questions we consider the fact that substantial increase in student enrolments in Botswana occurred after the mid-1980s.

This suggests that the Botswana Government has among others invested in reproducible capital such as machines. In essence the Hartwick rule holds that revenue from a non-renewable resource such as diamonds should be invested in other economic activities that will yield income, output economic activities that will yield income output employment and consumption in the future after the non-renewable resource is depleted.


It is principle that s implied by the bank of Botswana in its annual report of 2017. Therefore on purely economic grounds, it is necessary for Botswana government to continue to spend so much money on education.
The dividends for this type of investment may not be apparent now but they will in the future.

By contrast the skills mismatch and the high graduate unemployment which are now prevalence in Botswana suggest that the government might not be getting good return on investment. Moreover, competitiveness reports rank Botswana lowly on the quality of education. The issue really is how to increase the quality of education and produce graduates that are demanded by employers.


This report is adopted from the Stanbic Bank Quarterly Economic Review, 2015

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Vendors ready for the Tobacco Control Bill

21st September 2021
Vendors

Some vendors have been misled
Vendors thrive on households goods and fresh produce

Despite the previous false allegations that the Tobacco Control Bill will lead to several 20 000 vendors across the country losing their jobs, several local vendors have expressed that they are ready for the bill and because vendors sell mostly household goods

“This is something that we openly accept and receive as street vendors, the problem is some of our counterparts were misled and made to believe that we will not be allowed to sell cigarettes on our stalls.

Some of us got to understand that the bill states that we have to be licensed to sell cigarettes, we are not supposed to sell them to children under the age of 18 years of age and eliminating the selling of single sticks. We understand that this agenda is meant to develop a healthy nation but not take us down,” said Mbimbi Tau a vendor who operates from Mogoditshane.

The Tobacco Control Bill has been passed in several countries and street vendors are operating properly without any challenges faced. Tau further mentioned that there is no way that the Tobacco Control Bill will affect their business operations, all they have to do as vendors are to get the required documentation and do what the bill requires.

Another vendor Busani Selalame who operates from Gaborone Bonnington North was not shy to express his support towards the Tobacco Control Bill, “the problem is that some people within our sector have been misled and now they think that the bill is meant to take our operations down and completely stop selling cigarettes.

I support the fact that we are not supposed to sell cigarettes to children who are under the age of 18 years of age this has always been wrong, as parents we should be cautious of such and ensure that our children are disassociated with cigarettes,” said Selalame.

The Tobacco Control Bill prohibits advertising, promotion and sponsorship by the tobacco industry to prevent messages, cues, and other inducements to begin using tobacco, especially among the youth, to reassure users to continue their use, or that otherwise undermine quitting.

Renowned economist Bakang Ntshingane is of the view that since vendors sell household goods and fresh produce they are likely to keep on making profits despite what the Tobacco Control Bill comes with. He further stated that the Tobacco Control Bill will not be of harm on the local economy since the country does not manufacture or produce any tobacco related products.

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BANCABC Botswana poised for growth amid tough operating environment

21st September 2021
BANCABC

BancABC Botswana, the BSE-listed bank today announced its half year results for the six months ended 30 June 2021, against a subdued economic backdrop, exacerbated by the COVID-19 pandemic and related lockdowns.

BancABC has remained resilient in the current operating environment as business activity increased in the first half of 2021, with Real GDP up by 0.7% in the first quarter compared to a contraction of 4.6% in the previous quarter. Commenting on the results, Managing Director Kgotso Bannalotlhe said, “Currently, economic activity is relatively stable.

While COVID-19 placed significant pressure on the economy and our overall business, BancABC Botswana has shown remarkable resilience amid a tough operating environment.  While the bank operates in an environment that is seeing a rise in COVID-19 infections, it is encouraging that the business has maintained a healthy capital adequacy ratio as well as being successful in improving total expenses with focus on cost containment across the board.”

The retail segment saw an increase in customer deposits this year, signalling an improvement from the previous period and strengthening the current funding mix. This segment has built great momentum and continues to advance its digital strategy, through various products such as the mobile banking app, SARUMoney, as well as enhanced product offerings such as the introduction of fash cash. The Bank has invested in its digital capabilities to ensure a seamless and hassle-free banking experience for all its customers.

The commercial segment was successful in reducing the cost of funding. In addition, Treasury and Global Markets performed well, doubling from the previous comparative period. The current year performance across the bank’s different segments is testament to the bank’s strong income lines, aiding the Bank’s resilience during this time.

“The Bank experienced slow loan book growth due to a constrained economic environment, however, we remain optimistic that as the economy recovers, credit appetite amongst the Bank’s customer-base will increase. In addition, we reported good non-interest revenue, driven by increased trading income on the back of improved margins and volumes. Our outlook remains positive as we expect momentum across the different segments to improve over time,” said Ratang Icho-Molebatsi, BancABC Botswana Finance Director.

In April 2021, BancABC Botswana’s ultimate holding company, Atlas Mara Limited, as well as ABC Holdings Limited and Access Bank Plc announced an agreement to a proposed acquisition of 78.15% of BancABC Botswana. The transaction presented an opportunity for BancABC Botswana’s strong retail banking operation to merge with Access Bank’s wholesale banking capabilities, augmenting itself as one of Africa’s leading banks.

“The transaction provides significant scope for revenue diversification and growth in the corporate and SME banking segment. Increased access to trade finance, treasury, international payments and loans through the wider distribution network offered by Access Bank’s presence in the key trade corridors that connect Africa to the rest of the world, presents solid opportunities for BancABC Botswana”, commented Icho-Molebatsi “With the transaction, BancABC Botswana’s customers stand to benefit from best-in-class digital platforms and product suites, leveraging Access Bank’s group IT infrastructure as well as other fintech solutions”, said Bannalotlhe.

Further, with Access Bank expanding its footprint into Botswana, it will position the Bank to deliver a more complete set of banking solutions to Batswana across the country”, concluded Bannalothle.

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Botswana secures P1.5 billion from African Development Bank 

21st September 2021
Peggy Serame

 Last Friday, the board of Directors of the African Development Bank Group authorised a $137 million (P1.5 billion) loan to support Botswana’s Post COVID-19 pandemic economic recovery.

The funds, extended under the Bank Group’s Botswana Economic Recovery Support Program, will be used to enact multi-sector reforms that will increase spending efficiency, create jobs and drive inclusive growth.

The project has three components: enhancing domestic resource mobilisation and mitigating fiscal risks to enhance macroeconomic performance and create fiscal space for spending on social safety nets; supporting private sector-led agriculture and industry to bolster productivity and value addition and increase job opportunities, and offering business development services to micro and small enterprises to advance social protection and gender equity. The three components are expected to reinforce one another.

“The African Development Bank is providing support for reforms to enhance private sector-led agriculture and transformation of the industrial sector,” said Leila Mokadem, Director General of the Southern Africa Regional Development and Business Delivery Office. “Agriculture value addition can serve as a springboard for industrialisation and job creation,” she added.

The project aligns with the Bank Group’s Ten-Year Strategy (2013-2022) and its High Five strategic priorities, particularly Industrialise Africa and Improve the quality of life of the people of Africa. The African Development Bank observed that Botswana has a very low risk of debt distress and a positive medium-term growth outlook. However, a lack of economic diversification exposes the country to significant vulnerabilities.

The Bank Group’s active portfolio in Botswana amounts to UA 57.7 million ($81.9 million) and comprises four projects. The financial sector accounts for the largest share of the portfolio by industry (97.1%), followed by agriculture (1.7%) and industry (1.2%). In the past, the African Development Bank partnered with various Botswana government agencies to accelerate economic growth.

On the 21st of February 2020, the bank signed a thematic Line of Credit (LoC) of P900 Million for a 10-year tenor with Botswana Development Corporation (BDC), a wholly state-owned investment agency. This was during that time, the single largest transaction of its nature to ever take place in Botswana.

The LoC was penned to support the BDC’s long-term strategy to scale up its investments in critical sectors, including manufacturing, transport and service sectors, with the overall objective of supporting the transformation and industrialisation of the Botswana economy. BDC eyed a more comprehensive socio-economic benefit with this partnership, including attracting investments into the economy and employment creation.

The African Development Bank is a multilateral development finance institution. It has an overarching objective to spur sustainable economic development and social progress in its regional member countries (RMCs) through mobilising and allocating resources for investment and providing policy advice and technical assistance to support development efforts.

This transaction was poised to support further BDC’s focus on safeguarding its balance sheet to ensure financial sustainability whilst fulfilling its mandate as the Botswana Government’s principal investment arm.

The COVID-19 pandemic has landed massive blows on Botswana; apart from claiming more than 2300 lives thus far, the contagious plague has exacerbated existing growth challenges. The effects of the pandemic have led to an estimated real gross domestic product (GDP) contraction of 7.9% in 2020, according to the World Bank, worse than that of the 2009 global financial crisis.

The contraction reflects the impact that reduced global demand, travel restrictions and social distancing measures have had on output in crucial production and export sectors, including the diamond industry and tourism.

Botswana’s fiscal deficit is set to widen to 11.3% of GDP in FY2020/21, from 5.6% in FY2019/20, reflecting a sharp decline in mineral revenues, a sticky public sector wage bill, and the impact of the COVID-19 spending. Similarly, the current account deficit is estimated to have widened to 8 percent of GDP in 2020 following the sharp decline in diamond exports.

Developments in the global diamond industry will significantly impact the short-term recovery, given Botswana’s dependence on the commodity. While recovery is expected in 2021 due to a favourable outlook for the diamond industry, the economic impact of COVID-19 is likely to be deep and long-lasting. The P1.5 billion African Development Bank loan comes after the World Bank approved a P2.5 billion boost for Botswana early this year.

The Programmatic Economic Resilience and Green Recovery Development Policy Loan (DPL) will support the implementation of Botswana’s Economic Recovery and Transformation Plan and is designed to strengthen COVID-19 pandemic relief while bolstering resilience to future shocks.

In August, Botswana received the International Monetary Fund (IMF) 189 Special Drawing Rights allocation worth P3 billion. The IMF SDR is a non-currency asset that Botswana can convert into hard currency by trading it with other IMF member countries.

 

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