Factors influencing the Economic Success of Botswana

Despite early economic success and growth in the 1960’s and 1970’s, Africa is now on the decline and is getting poorer and poorer as the years pass by. The average African country is poorer than the average low-income country and is steadily getting poorer. In fact, the average growth rate of African countries has been negative since 1965. (Acemoglu, 2001)

Although African countries on the average have a negative growth rate, there is one African country that has not only had positive growth rate, but also better than any other country in the past 35 years, that country is Botswana. But, how did this landlocked country, the size of Texas become so successful? In order to answer this question we first need to look at a few factors: the geography of Botswana and the recent history of the country.

Geography

Initially just taking a first glance at the country we can see that Botswana did not start out with favorable economic conditions when it pertains to geography. Botswana is a mainly tropical, landlocked country; which many economists see as a disadvantage. (Bloom and Sachs, 1998) It is bordered by South Africa to the south and southeast, Namibia to the west and north, and Zimbabwe to the northeast. Not only is the country landlocked but also most of Botswana is uninhabitable with the Kalahari Desert accounting for 70 percent of Botswana’s landmass.

After the British Left

In addition to the country being and landlocked and mostly uninhabited Botswana did not start out with favorable economic conditions when it gained independence from the British in 1966. When the British left the country, there was only: 7.5 miles of paved road; 22 citizens who had graduated from a university; 100 citizens who graduated from secondary school; no military force; and also was considered one of the most impoverished countries in Africa.

How Did Botswana Become Successful? Reason 1

How did Botswana become successful? Botswana achieved its extravagant growth due to the countries ability to adopt and incorporate good governmental and economic policies. When Botswana gained its independence in 1966, the country adopted a democratic system, known as the Westminster parliamentary system. The Westminster system is a democratic parliamentary system of government modeled after the politics of the United Kingdom; in other words a governmental system that is very similar the governmental system of the United States. (Webster 2004)

In addition to their Western political system, Botswana also inherited a British common-law legal framework. Criminal courts used a precedent-based legal code, and civil law incorporates traditional practices into the legal framework. (Ashton,1947, pg 240-245) The government has be able to take the public service structure, that it inherited from the British, and the government developed it into moderately non-corrupt and economical system of government. Botswana’s was not only able to adopt the post-colonial legal framework but it also managed to preserve some of the important features of tribal law while incorporating important aspects of the British common law. (Good, 1986, pg 65-95)

How Did Botswana Succeed? Reason 2

Now, although the British occupied Botswana they were not actively involved in Botswana. Economists uphold that the British had a policy of “benign neglect” or a policy or attitude of ignoring a situation instead of assuming responsibility for managing or improving it. During the time the British occupied Botswana they did not take or use many natural resources, nor did they leave much in the way of social or physical infrastructure. The British spending went to “administrative expenses” and another large portion was spent on upgrading defense units. But beyond this defense spending, the British basically did not see any promise of returns in investing in Botswana.

Diamonds

Due to the reasons above, this gave Botswana another opportunity to become successful. While the British occupied the country they did not exploit and benefit from Botswana’s most natural resource – diamonds. Diamonds have been important for economic growth in Botswana, and currently diamonds account for about 40 percent of Botswana’s GDP (Gross Domestic Product). (Jefferis, 1998)

The Formula for Success

The formula for success for Botswana has been fairly simple: a fiscally conservative policy of low taxes and little government spending. Through this formula, Botswana has become the fastest-growing economy in Africa over the past 40 years. Botswana is generally praised for its quest of sound economic policies, which have enabled it to use its diamonds wisely. Even though there are large revenues from diamonds, this has not created political instability due to the Botswana government. (Easterly, 1995, pg 1246-1252)

Through the output of diamonds, Botswana metamorphosed from one of the poorest countries in the world to upper middle-income status. These impressive achievements have earned Botswana the highest independent debt ratings and best anticorruption rank in Africa.

Since independence, Botswana has had the highest economic growth rate in the world, averaging about 9% per year from 1967 to 2006. The government has maintained budget surpluses and has extensive foreign exchange reserves estimated to be about $9.2 billion. (U.S. Sate Department Botswana)

Mining

The mineral industry of Botswana has dominated the national economy since the early 1980s. The Diamond has been the leading component of the mineral sector since large-scale diamond production began almost 30 years ago (Connor, 1985, pg156-159) Most of Botswana’s diamond production was of gem quality, which resulted in the country’s position as the world’s leading producer of diamond (about 25% of worldwide production). Copper, gold, nickel, coal, gold-nickel matte, and soda ash production has held traditionally significant, although smaller, roles in the national economy (Liegh, 2000). In 2005, mining accounted for just under 40% of Botswana’s real GDP, and more than 50% of government revenues were derived from mining.

Private Sector Development

Botswana seeks to further diversify its economy away from minerals, which account for just under 40% of GDP. Botswana abolished foreign exchange controls in 1999, has a low corporate tax rate (15%), and no prohibitions on foreign ownership of companies. (Leigh, 2000) The Government of Botswana was considering additional policies to enhance competitiveness, including a new Foreign Direct Investment Strategy and National Export Development Strategy. Botswana’s parliament adopted both a Privatization Master Plan and a new Competition Policy that were aimed at fostering economic diversification. (Economic Snapshot)

U.S. investment in Botswana remains at relatively low levels. Major U.S. corporations, such as Kentucky Fried Chicken, are present. (Economic Snapshot) Despite continued challenges such as not having a large market size, being a landlocked nation, and having a burdensome bureaucratic process, Botswana remains one of the best investment opportunities in the developing world.

HIV/Aids affecting the success of the Botswana Economy

The one thing that could limit Botswana from growing more is the Aids epidemic. Botswana is experiencing one of the most severe HIV/AIDS epidemics in the world. The national HIV rate among adults’ ages 15 to 49 is 24.1 percent, which is among the highest in Africa. The primary mode of transmission is heterosexual contact, with the military and young women at higher risk of HIV infection than the rest of the population. Young men ages 15 to 24 experience an HIV rate of 5.7 percent, while young women in the same age group experience rates of 15.3 percent. HIV infection rates also vary by geographical region and are highest in towns, lower in cities, and lowest in villages. (Botswana Aids Report)

HIV/AIDS threatens the many developmental gains Botswana has achieved since its independence in 1966, including economic growth, political stability, a rise in life expectancy, and the establishment of functioning public educational and health care systems. (Bardill 1985)

Botswana’s workforce is being depleted as many adults contract the Virus and are no longer able to work. Between 1999 and 2005, Botswana lost approximately 17 percent of its health care workforce due to AIDS, and by 2020 the loss in agricultural labor force could be more than 20 percent. Among the workforce that could be lost, teachers could have the highest effect on the country. High levels of HIV/AIDS among teachers reduce both the quality of education and the numbers of hours taught. (Botswana Aids Report)

Conclusion

The success of Botswana is mostly due to its creation of good policies. These have promoted investment and the socially proficient exploitation of resources. These policies resulted from an underlying set of policies that encouraged investment and economic development.

I discussed the factors that could account for the success of the country after 1966. I conjecture that Botswana’s success comes from a combination of factors:

1. The formula for success for Botswana has been fairly simple: a fiscally conservative policy of low taxes and little government spending.

2. Implementing the Western political system, Botswana also inherited a British common-law legal framework

3. Benefited from most natural resource – diamonds

Botswana is an example of a country that implements sound policies and a political system and having economic success, even though it started with unfavorable initial economic conditions. Botswana was able to grow rapidly because it possessed the right governmental framework. Despite being a small, landlocked nation, in a very unstable political situation, Botswana experienced rapid growth.

Now although Botswana is a very successful country we end with a little caution. While the economic achievements of Botswana have been extraordinary, there remain some serious problems in Botswana. Particularly with respect to the incidence of AIDS, it still remains to be seen if Botswana’s government and policies will be strong enough to address that major issue and still sustain growth. (Bardill 1985)