Why Botswana: The Resource Curse

Africa seems to be a land of pessimism. In the Western imagination, Africa is a land of never-ending poverty and conflict, that no matter what we do seems to make no difference. To this day Africa remains a collection of mostly low-income and politically unstable polities. Now these views are widespread and exaggerated as Africa is slowly but surely climbing out of the hole that colonialism left, but it is grindingly slow. Well, this is except for a little place called Botswana.

How did this relatively unknown country manage to go from being one of the poorest countries in the world to one of those most economically successful and politically stable countries in Africa. This is the success story of Botswana.

The general consensus for the success of Botswana is, as Acemoglu, Robinson, and Johnson summarize, “The explanation for the success story is found mainly in limited colonial influence, good political institutions, wise leaders, and prudent economic policy.” The good political institutions and good leaders from the outset allowed for the creation of a stable democracy. At the same time the implementation of sensible economic policies in regards to the country's fabulous mineral wealth allowed for the country to break the “resource curse” and rise to a middle-income country.

Located in southern Africa, the country of Botswana is entirely landlocked, with a size comparable to that of Texas or France. Its climate ranges from arid desert to semi-arid and is mostly flat. At only 2,350,667 people (July 2021 est.), it is very sparsely populated with “the population is primarily concentrated in the east with a focus in and around the capital of Gaborone, and the far central-eastern city of Francistown; population density remains low in other areas in the country, especially in the Kalahari to the west[.]” The country has also been fortunate to have plentiful natural resources especially in the form of diamonds.

While the region had been inhabited by the Tswana and other groups for long periods before colonialism, the history of Botswana truly began with its colonization by the British in the 19th century. In an attempt to not be incorporated into the neighboring colony of Rhodesia or South Africa, in 1885, tribal leaders from the Tswana tribes managed to convince their British colonizers to give them their own colonial status. So was born the British Protectorate of Bechuanaland.

This was about the extent of British colonization up till their independence in 1966. To quote Acemoglu et al, “When the British left, there were 12 kilometers of paved road, 22 Batswana who had graduated from University and 100 from secondary school.” There were only two secondary schools in the entire country. Only a quarter of the 1,023 bureaucrats were native Batswana. Not only this but “50% of government expenditures upon independence had to be financed by transfers from Britain.” The country was poor. Dirt poor, with very little going for it.

The British had always maintained a minimal presence in the country to incur as little cost as possible on their already overstretched empire. The Batswana usually served only as a source of labor for the far more important colony of South Africa, with the seat of Botswana’s administration actually being in Mafeking, South Africa until shortly before its independence. However, hope arrived for the little country when diamonds were discovered a little over a year after independence in Orapa in northeaster/north-central Botswana.

Herein, the future of Botswana faced a crossroads. On the one hand, here was the opportunity to lift the beleaguered country out of poverty through the exploitation of these natural resources. On the other was the possibility that it could fall into the “resource curse” that has crippled so many resource-rich countries the world over.

The resource curse is an interesting phenomenon in that it is born out of an opportunity for great prosperity and wealth for a region. What occurs is that a resource is discovered or the price for an already known resource increases in price. This for obvious reasons brings about a serious amount of investment, speculation, and migration to the site of said resource. This brings about an economic boom for the region in question. However, what follows is “many countries have been unable to properly manage these windfall gains, ending up spending too much, too quickly.” (Sarraf and Jiwanji, 1)

One reason often given for the resource curse is the “staple trap.” The staple trap is when “Countries on this trajectory tend to experience strong Dutch Disease effects, closed economies, few incentives for the development of capital, and high dependency on the boom sectors for foreign exchange and revenues. When the boom subsides, groups with vested interests block the required adjustments to real exchange and wage rates.” (Sarraf and Jiwanji, 6) Put more simply, the county becomes overly dependent on one or a few resources, which leaves it quite vulnerable. A country effectively becomes dependent on the revenue of the resource in question.

What’s worse, the resources in question generally have weak linkages to the rest of the economy. This means that the resources exported have very little effect over the rest of the economy, therefore, there is little to gain from the State and economy as a whole other than direct taxation on resource extraction.

Except for weak linkages, this is all the result of bad government policy. The biggest culprit is that of overspending and the overreliance on the revenue received from resource extraction. Along with this, there is malinvestment on the part of these governments. At the same time, countries can hold off on reforms due to the large revenues, as well as becoming increasingly protectionist in an attempt to avoid the Dutch Disease. The problem is further exacerbated by rent-seeking by those involved in resource extraction, which in turn damages the economy.

The resource curse is not an economic law but rather a common tendency amongst countries that have been endowed with abundant resources. Sarraf and Jiwanji argue that the evidence shows that the correct policies can avoid these pitfalls. A great example of this is Botswana.

Botswana was able to achieve middle-income status by avoiding the previously mentioned pitfalls. The Botswanan economy was and is dominated by the mining industry. This was the industry that has allowed the country to break out of poverty when, as was previously mentioned, diamonds were discovered shortly after independence.

The Khama government would negotiate with the DeBeers company to receive 50% of the diamond profits from this venture, which secured for the nascent government a relatively lucrative revenue stream. This was along with further mineral exploration that would reveal locations for the mining of copper, zinc, and coal. Using the revenue from this industry would jumpstart its economy where the “Two main objectives guided Botswana's economic policies: avoid external debt and stabilize growth on one hand, and encourage economic diversification on the other.” (Sarraf and Jiwanji 10)

To achieve the first goal, the government sought to secure foreign reserves, as well as to maintain budget surpluses. These surpluses would be used when the resource booms would inevitably end, thus, avoiding the problem of overspending. By doing this they could avoid having to drastically cut expenditures and maintain control over inflation. The foreign reserves served as a way to keep the local currency from appreciating. At the same time, the government refused to increase spending whenever the mineral revenue increased; “Instead, it based expenditure levels on longer-term expectations of export earnings and government revenues.” (Sarraf and Jiwanji, 11)

Now came the question of how they should reinvest into the country. When seeking to reinvest domestically, the government would only do so when its parliament passed a National Development Plan that plotted out the annual expenditure that the project would require. This ensured that there would be no further add-ons to said projects, thus, astutely avoiding debt traps and ensuring that the projects would not be abandoned if mineral prices fell.

Another vital aspect of Botswana’s economic strategy was the overall diversification of the economy. Diversification was especially necessary not only because of the risk of overreliance already documented but because of the limited employment that the mining sector provides. This is due to its capital-intensive nature. In 1989, the year mining reached its peak and made up over half of the economy, the industry only employed around 4% of Batswana. For this reason, the government made considerable efforts to diversify the economy with some success. It markedly increased the growth of the service sector and some growth in the agriculture sector. Today Botswana remains largely reliant on its diamond exports and it remains at around a quarter of its GDP. In the next installment, we will look at the political side of Botswana’s success









Bibliography


Acemoglu, Daron, and et al. “An African Success Story: Botswana.” SSRN Electronic Journal, 2001, doi:10.2139/ssrn.290791. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=290791


Hillbom, Ellen. “Diamonds or Development? A Structural Assessment of Botswana's Forty Years of Success.” The Journal of Modern African Studies, vol. 46, no. 2, 2008, pp. 191–214., doi:10.1017/s0022278x08003194. www.jstor.org/stable/30225921


Mogalakwe, Monageng, and Francis Nyamnjoh. “Botswana at 50: Democratic Deficit, Elite Corruption and Poverty in the Midst of Plenty.” Journal of Contemporary African Studies, vol. 35, no. 1, 2017, pp. 1–14., doi:10.1080/02589001.2017.1286636. https://www.tandfonline.com/doi/full/10.1080/02589001.2017.1286636?src=recsys


Sarraf, Maria, and Moortaza Jiwanji. “Beating the Resource Curse: the Case of Botswana .” The World Bank, The World Bank, 31 Oct. 2001, http://documents.worldbank.org/curated/en/412021468227707937/Beating-the-resource-curse-the-case-of-Botswana

“Botswana .” Central Intelligence Agency: The World Factbook , Central Intelligence Agency, www.cia.gov/the-world-factbook/countries/botswana/#introduction.





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