Current Economic Situation

According to various sources, the current minimum wage in Botswana is P7.34 per hour for general sectors and industries. Per month, that would amount to P1,321.20, assuming working hours of 7am to 4pm, 5 days a week. For Agriculture and Domestic sector, the minimum wage is P1,500 per month while the public servants’ minimum wage is P2500 per month.

Increasing the minimum wage from P1,321 to P4,000 would be a 203% increase. This article briefly discusses the pros and cons of increasing the minimum wage but its main aim is to inform Batswana of the main factors that leaders, businesses, and politicians should consider before making decisions or having an opinion about the matter.

The broader economy of Botswana has faced headwinds due to a downturn in the global diamond market, a critical revenue source. Since independence, the economy has failed to diversify, with the mining industry accounting for approximately 70-80% of economic output.

This has led to economic stagnation, with the economy forecasted to contract in 2024 by -2.8% and unemployment rising from 18% in 2018 to 28% in 2024. The new administration acknowledges these challenges, with Vice President and Finance Minister Ndaba Gaolathe noting that the economic situation is more challenging than anticipated. They’ve also highlighted a depletion in government savings and investments from approximately P19 billion to P5 billion.

Potential Benefits of the Wage Increase

Improved Living Standards

Raising the minimum wage to P4,000 could significantly enhance the quality of life for low-income workers, enabling better access to essential goods and services. Higher incomes could then boost domestic consumption, potentially stimulating economic growth.

However, most of the consumption goes to imported goods, foreign franchises, and foreign-owned local businesses, which benefits Batswana's immediate consumption needs but fills the pockets of foreigners at the end of the day.

Reducing Income Inequality

This increase in minimum wage can help narrow the income inequality gap. Income inequality is a pressing issue in Botswana, with the country consistently ranking among the most unequal societies in the world. The Gini coefficient—a measure of income inequality where 0 represents perfect equality and 1 represents perfect inequality—stands at 0.53 in Botswana, which is significantly higher than the global average of around 0.38.

This disparity is largely attributed to structural factors, including reliance on a capital-intensive diamond industry, limited economic diversification, and unequal access to quality education and jobs.

Challenges and Problems

Employment Impact

One of the highly discussed disadvantages is the high risk that higher labour costs could discourage businesses from hiring. This could be disastrous as the economy has unemployment at 28% and increasing. Scratching deeper, some sources cite a 40-50% youth unemployment rate.

Furthermore, African economies including Botswana, tend to have a large informal sector which means that people who are willing to accept pay that’s less than P4000 would accept it ‘off-the-record’, exposing them to exploitation by employers. This informal hiring would mean job security is challenged as employees would not be protected by labour laws and could be laid-off any time

Business Costs and Survival:

Concerns have been raised that such an increase could strain businesses, particularly small and medium enterprises (SMEs), potentially leading to closures or layoffs. A high minimum wage could mean small businesses can struggle to scale and grow faster as the cost of every new employee is too high to increase operations.

These high costs eventually challenge the survival of businesses in Botswana especially those that are labour-intensive. This could leave only large businesses as the only players in the markets who could have enough monopoly power to pass down costs to consumers by increasing prices and driving inflation while economic growth is strained.

List of other factors to be considered

Compliance and Enforcement:

Evaluating the government’s capacity to enforce wage laws. Weak enforcement might limit the policy’s effectiveness.

Gender and Youth Employment:

Consider how a wage increase might impact vulnerable groups, such as graduates and school drop-outs who may be overrepresented in low-wage jobs.

Foreign Direct Investment (FDI):

Botswana’s ability to attract FDI may be affected if higher wages increase operational costs compared to neighbouring countries.

Sector-Specific Sensitivities:

Consider sectors like mining and tourism, which are critical to Botswana’s economy. Evaluate whether they can absorb higher labor costs without losing competitiveness.

Labor Productivity:

If productivity levels are low, raising wages without a corresponding increase in output might strain businesses.

Incentive for Upskilling:

Higher wages might encourage workers to invest in skills development, potentially boosting productivity over the long term.

Tax Revenue:

Higher wages can increase income tax revenues, benefiting government finances.

Subsidy and Welfare Costs:

If a minimum wage increase reduces reliance on government welfare programs, it might reduce spending.

Public Sector Wages:

Consider whether an increase in the minimum wage would pressure the government to raise public sector wages, impacting budget allocations.

Comparative Wages:

Evaluate Botswana’s minimum wage relative to its neighbors (e.g., South Africa, Namibia) and trading partners. A significantly higher minimum wage might attract or repel workers and businesses.

Implementation

The UDC government has indicated a commitment to fulfilling its wage promise but emphasizes the need for careful economic assessment before implementation. President Boko stated that the government is evaluating the true state of the economy to determine the feasibility of these increments. This cautious approach suggests that while the wage increase is a priority, it will be executed in a manner that seeks to balance economic stability with social upliftment.

Former President Mokgweetsi Masisi cautioned that the proposed wage hike could collapse the economy

Conclusion

Raising Botswana's minimum wage to P4,000 presents a complex interplay of potential socioeconomic benefits and economic risks. The government's prudent approach to thoroughly assess economic conditions before implementation reflects an understanding of these complexities. A phased or sector-specific strategy may mitigate potential adverse effects, allowing the economy to adjust while striving to improve living standards for workers