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Economics & Finance

Diamonds, discipline and development: Botswana comes of age

Jane Williams |

Diamonds helped pull Botswana out of poverty and catapulted the country’s economic growth into the double-digits. Where does the land-locked world-class diamond producer go from here?

When the first diamonds were scratched from the rocky outcrops on the edge of Botswana’s Kalahari Desert, there was little inkling how this commodity would change the nation. The Botswana people, having recently overturned its status as a British protectorate, were amongst the world’s poorest, eking out a subsistence farming in a country stricken by drought. The landlocked country, the size of France and 75 percent desert, had just 12km of tarred roads, a total of 22 university graduates and an annual per capita income of under US$80.

Forty years on Botswana has transformed itself from a struggling agricultural economy into the world’s biggest diamond producer with average per capita GDP of US$14,000 and one of the highest economic growth rates in the world.

Escaping the resource curse

Through good governance and prudent macroeconomic and fiscal management, Botswana has escaped the “resource curse” afflicting many of its resource-rich neighbours still struggling with poverty, corruption, civil war and under-development. Why did Botswana succeed where others failed and what will happen when the diamonds run out?

Botswana businesswoman and deputy secretary-general for the Commonwealth Secretariat Mmasekgoa Masire-Mwamba says by coming from such poor roots, there was no question of corrupt leaders plundering Botswana’s assets. “There was nothing to steal,” she notes. Instead the country was lucky to have had four leaders who strove for “development, discipline, dignity and delivery”.

“Botswana after the British left was a nation pulling together with no template for success but a home grown need and drive to develop an economy and a livelihood for its people,” Ms Masire-Mwamba told the INSEAD Leadership Summit Middle East in Abu Dhabi last month. “The uniting thing with all our leaders has been this vision of a country that is standing up by its own bootstraps. What has been unique about Botswana is the way it has used its diamond wealth for development. The way it has created institutions and an enabling environment which has allowed governments and the people of Botswana to optimise their contribution to the development of the country.”

The country’s insistence on the highest degree of transparency, its zero corruption tolerance and the creation of an independent judiciary which “governs the governors” ranks it consistently among the highest in Transparency International’s corruption perceptions index.

Income inequality and HIV

Yet despite its impressive income growth and social standing, Botswana has been unable to eradicate pockets of poverty. Education expenditure, while significant at 10 percent of GDP, has not created the skilled workforce the country needs today. As a consequence, unemployment remains high, creating extreme income inequality.
The HIV/AIDS pandemic has further exacerbated the situation with life expectancy down to 53 years (from 65 a decade ago). In 2009 an estimated 300,000 people – 25 percent of the country’s population - had HIV with many families pushed into poverty due to loss of productivity and the cost of medical care. The government has been addressing the problem at a cost of hundreds of millions of dollars a year.
“The challenges of HIV have been a very costly enterprise with very strong productivity implications, and this is a major challenge for the country,” Ms Masire-Mwamba says.

A second transformation

To address the high unemployment and income inequality, Botswana is pushing to diversify its economy away from minerals, expand its private sector and attract foreign investment. A difficult task Ms Masire-Mwamba admits given the country has a relatively small domestic market of just two million people.

“Botswana is just moving into this phase of development and we have to look at how the government can create an enabling environment that allows the country to be more competitive and to attract the kind of developments that are more sustainable to moving forward. But when we talk about transformation it’s important to talk not just about leadership but about the people’s aspirations.”

Diamond exports “fading”

Entrepreneurship is a relatively new concept to the Botswana people, who come from an agricultural background with little movement or trade in ideas. But with diamond exports plateauing, entrepreneurial activity is becoming more important than ever.

In a public lecture organised by the Bank of Botswana last year, the International Monetary Fund’s deputy managing director Naoyuki Shinohara said Botswana is facing a pivotal point in its history as the country’s long-term success on the back of natural resource exports “seems to be fading”.

“Diversification is critical for Botswana’s future, and there is no silver bullet,” Mr Shinohara says. Like the oil-rich Gulf states, Botswana needs to foster private sector growth and redirect foreign direct investment - now confined to the diamond sector - to areas such as tourism, trade, and telecommunications.

“Going forward, a combination of a leaner public sector and a more dynamic private sector are essential for increasing and sustaining growth in Botswana.” Education and improving labour force skills that are in demand is critically important, he adds.
Human rights

Throughout any change, Botswana needs to keep in mind a strong nation looks at more than the bottom line. “The social policies that created a strong stable environment need to be nurtured,” Ms Masire-Mwamba told Knowledge at the sides of the Abu Dhabi Leadership Summit. “Raising human rights awareness is extremely important to all of Africa. It’s an element of government that has hitherto not been prioritised in a lot of developing countries. But I think we’ve seen with the amount of social unrest that’s been manifest in the Arab Spring in particular, issues of exclusion, issues of human rights, issues of not taking into account the population as a whole are very important and can undermine achievements that have been made in an economic sense.”

Africa, she says, has many new leaders looking to open up their economies to make it easier for foreign investment while the construction of new roads, rail and IT infrastructure are creating an environment conducive to attracting private businesses.

Impact of global debt crisis

The global debt crisis has had a mixed impact across the continent with many countries now feeling the roll-on affects as the U.S. and the EU cut back on spending. “What however, is most interesting is the very strong resilience and pushback,” Ms Masire-Mwamba notes.

“A lot of African economies are coming out of this global crisis with a strengthening of local institutions and the local economy simply because the engagement with the international economy was affected during this period. This degree of resilience is acting as encouragement for not just Botswana or the Commonwealth nations, but many African economies to solidly contribute and show how they can become part of the global economy.”

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