BOTSWANA: HOW INSTITUTIONS KEPT THE RESOURCE CURSE AWAY

Written in 2010.

ABSTRACT

The natural resource curse has plagued many countries. Scholars have studied the mechanisms through which the discovery of natural resources causes a country to end up facing civil and political strife, and devastating economic consequences. Botswana, a diamond-rich sub-Saharan country that gained its independence from the British in 1966, has successfully turned its natural resources into prosperity. Considered to be the African miracle, Botswana is a model for other resource-rich countries. Various explanations have been put forward to explain Botswana’s uniqueness. This paper seeks to reconcile the various aspects of the resource curse literature to prove that the development and the sustenance of good institutions enabled Botswana to avoid the resource curse.

INTRODUCTION

“The devil’s excrement” – that is how Juan Pablo Perez Alfonzo described oil in the 1970s (Useem 2003). By this the former Venezuelan Oil Minister and OPEC co-founder tried to summarize the main essence of the resource curse literature. The “resource curse thesis” suggests that resource-rich countries fail to benefit from their favorable endowment and exhibit worse performance in comparison to the less-well-endowed countries (Auty 1993). This means that there is a negative relationship between natural resource intensity and economic growth (Sachs and Warner 2001). Empirical evidence verifies this claim. Since the 1970s, in the developing world, mineral-rich countries have consistently failed to perform better than mineral-poor countries. The Asian Tigers achieved high economic growth in spite of lacking natural resources. On the other hand, African countries such as Nigeria, Angola and Sierra Leone possessed enormous natural resources but faced severe conflicts and economic problems. Many scholars, therefore, identify natural resources as the cause of these conflicts and grave economic concerns.

There is however a particular case in Africa that stands out as the exception and is the center of attention of numerous scholars. Botswana, a country in sub-Saharan Africa, is highly endowed with diamonds. Exploration of diamonds in Botswana (called Bechuanaland at the time) began in the 1950s, and production started in 1971 (Good 2008). Rich in diamonds, Botswana grew at an average of 11 percent a year between 1974 and 1989 (Jefferis 1998). Over the last two decades, the country enjoyed impressive economic growth averaging at 7.8 percent per year (Fofack 2009). Botswana has also enjoyed peace and stability, contradicting the claims of the resource curse thesis. Starting off as one of the poorest countries in the world at the time of independence from Britain in 1966, Botswana enjoyed remarkably high rates of growth for the last four decades. Scholars have put forward various reasons to explain this exceptionality of Botswana. This paper argues that the presence of good institutions, the development of which dates back to the pre-colonial days, have continued to the present day and prevented Botswana from the resource curse.

BACKGROUND

Botswana is a landlocked country. Around 84 percent of the country is covered by Kalahari sand, and about 4 percent of the land can be cultivated (Beaulier and Subrick 2007). Botswana was formerly the British Protectorate of Bechuanaland, established in 1885. In spite of the formation of the Union of South Africa, Bechuanaland proposed to remain separate from the union, and Britain continued to maintain its hegemony over the country. Because of arid climate and the presence of better settlement opportunities elsewhere in southern Africa, Bechuanaland was not as adversely affected by colonialism as other parts of Africa. The country gained its independence in 1966. When the British left, there were 12 kilometers of paved road, 22 Batswana (people of Botswana) who had graduated from university and 100 from secondary school (Acemoglu, Johnson, and Robinson 2003). De Beers, a private company involved in the exploration, mining, and trading of diamonds, joined the government of Botswana to form the Debswana Mining Company, followed by the opening of the first diamond mine in Orapa, then one on Lethlakane, and another in Jwaneng (Beaulier and Subrick 2007). Botswana usually produces 25 percent of the value of the world’s rough diamonds (Roberts 2003). Previously an extremely poor country, Botswana became a middle-income country as it is now, thus challenging the resource curse thesis.

It is important to first look at how natural resources become a curse instead of a blessing. The important dimensions of the resource curse are (1) bad and often undemocratic governance; (2) lack of infrastructural development; (3) corruption and domestic conflict; (4) and the Dutch disease (Pegg 2010). This paper will look at Botswana to see if the given dimensions of resource curse hold true for the country or not. It is believed that the sudden bursts of revenues that follow the discovery of natural resources are used in unproductive, “short-sighted,” and “predatory” policies that are not aimed at long-term growth and prosperity of the country (Beaulier and Subrick 2007, 56). Botswana, unlike most other resource-rich countries, remained peaceful and prosperous, hence untouched by the resource curse. Understanding this outstanding country requires greater details about the development and sustenance of its institutions.

THE SIGNIFICANCE OF INSTITUTIONS

Institutions are “the rules of the game in a society” (North 1990, 3). In other words by North (1990), institutions are “humanly devised constraints that shape human interaction” (3). Institutions are “ultimately the endogenous creation of individuals” (Acemoglu, Johnson, and Robinson 2003, 103). Broadly, good institutions should protect property rights, uphold the rule of law, and ensure political participation of the people. Well-defined property rights encourage economic activities by removing the fear of expropriation or undue intervention or coercion. In a good institutional setting, any violation of such well-defined rights is subject to legal consequences. People’s rights to voice their opinions in the political process and in decision making are protected as well.

Botswana’s economic prosperity is attributed to its institutions. Research shows that institutions can bridge, to as much as three-quarters, the income gap between the “nations with the best institutions and worst institutions” (Acemoglu, Johnson, and Robinson 2003, 87). Hence, it is argued that Botswana progressed from a poor nation to becoming a prosperous middle-income sovereign country and sustained high growth rates due to its good institutions. To prove the validity of this argument, knowledge of the development of institutions in Botswana is indispensable.

THE KGOTLAS OF BOTSWANA

The development of good institutions in Botswana started in the pre-colonial days, continuing to affect the country to the present day. Botswana is relatively ethnically homogeneous with 90 percent of its people belonging to one of the eight major Tswana tribes (Molutsi and Holm 1990). The development of institutions in Botswana is attributed to the structure of the Tswana society, going back to the pre-colonial days. Elements of an organized hierarchical administration and participatory democracy are found in the Tswana tribal life. The chief, or kgosi, was the “nerve center of traditional Tswana life” (Mgadla 1998, 3). The chieftainship, or bogosi, was based on heredity among the males. The kgotla was an “assembly of adult males in which issues of public interest were discussed” (Acemoglu, Johnson, and Robinson 2003, 93). Kgotlas were common among the Tswana people in Africa (Schapera 1967). A kgotla was an arrangement for the participation of the general tribal people and represented a democratic form of inclusion in the decision-making process. The main administrative powers in the Batswana society were vested in the chief, his councilors, the headmen, and the subjects. Although the chief had the prime powers, he would always consult with the general polity, or morafe, and allowed their ideas to be expressed. Furthermore, toleration of dissent in the kgotlas suggests the presence of a mechanism for conflict resolution which also fostered the spread of information (Beaulier and Subrick 2007). In addition, the traditional Tswana political institutions incorporated the non-Tswana minority groups into the polity (Robinson and Parsons 2006). Such democratic arrangements continued to post-colonial Botswana, primarily because they were unaffected by British colonialism. The British, as already mentioned, found this landlocked, arid region of southern Africa unattractive and unprofitable. Therefore, in Bechuanaland (colonial Botswana), British economic activities were limited (Dunning 2005). Colonial settlements, fortunately for the people now known as the Batswana did not alter the kgotlas (Acemoglu, Johnson, and Robinson 2003). Hence, the people and the already-existing institutions remained largely untouched and continued to thrive in independent Botswana.

The kgotlas were not perfect, but such institutional development sheds light of Botswana’s success today. The kgotlas lacked the inclusion of the females, and also of the males below the age of 30. Furthermore, although the minority groups were included, they would refrain themselves from engaging in discussions (Molutsi and Hold 1990). These imply a de facto dominance of the male elders in the democratic process of the Tswana societies. Although not completely inclusive and democratic, the elements of the kgotlas are important in understanding the trajectory of the development of good institutions in Botswana.

DEVELOPMENT OF PROPERTY RIGHTS IN BOTSWANA

The institutions of property rights evolved in Botswana based on the elites’ interests in securing the cattle trade, and contributed greatly in the subsequent diamond trade and economic progress. The people in Botswana lived their lives in poverty for centuries, lacking basic infrastructure. They lacked healthcare and educational facilities (Molutsi 1994). Prior to the discovery of diamonds, cattle were the major resource. The elites possessed most of the cattle, and the political elites in both local states before independence and the national state at independence heavily invested in the most important economic activity, that is, ranching. This gave them an incentive to promote rational state institutions and private property (Robinson and Parsons 2006). Property rights, therefore, developed in Botswana with the strong support from the elites in the position of power who needed good institutions in order to secure their own financial interests.

The economy developed over time with the formation of proper structures that facilitated trade. One such example is the Botswana Meat Commission that promoted the export of meat to foreign countries. Cattle production gave the economy of Botswana the revenue and eventually the “lift-off” that continued with the development of diamond mining (Robinson and Parsons 2006, 121). It is also important to note that higher ethnic fractionalization leads to weaker property rights and lower incomes (e.g. Angola). But Botswana has lower ethnic fractionalization, and hence stronger property rights and higher incomes (Hoddler 2006). Good institutions protecting the private property encouraged economic activities and investments, resulting in stability and trust in the commercial sector of Botswana that is important for the diamond trade.

PROPERTY RIGHTS AND THE DIAMOND TRADE

The development of property rights played a very important role in ensuring the success of the diamond trade in Botswana. International mining companies initiated searching for diamonds in colonial Bechuanaland in the 1950s (Dunning 2005). Over time, the extraction and trade of diamonds began, and De Beers undertook the mining and trade of the precious mineral resource. Scholars (Ascher 1999; Jones Luong and Weinthal 2006; Weinthal and Jones Luong 2006) suggest that state ownership of natural resources is a reason that contributes towards the undesirable political and economic effects better known as the resource curse. But in Botswana, the government did not acquire complete ownership of diamonds. Botswana did not nationalize the diamond industry, but managed to bargain with De Beers and negotiate profitable deals. De Beers maintained control over the diamond mines, and the government received large shares of diamond revenue. The government of Botswana acquired 50 percent equity interest in Debswana, a joint venture company half owned by De Beers, which further ensured that the country would continue to  receive the benefits of high and stable revenues (Dunning 2005) Institutions securing property rights, therefore, enabled trade without the fear of expropriation and nationalization.

GOVERNANCE AND INFRASTRUCTURE

Botswana has a reputation for good governance and its well-functioning public institutions. Governance, as Iimi (2007) points out, determines transparency and accountability in the public sector. Eigen (2005) notes that in the post-independence period, Botswana’s constitution is explicitly written with formal separation of powers between the executive, the legislature, and the judiciary. In the article published by Transparency International, Eigen (2005) also points out the presence of an established system of executive review and the ability of the citizens to take actions against the government in the court of law. Botswana also enjoys freedom of speech and the media, with the institutions of participatory democracy and tolerance that developed since the pre-colonial days as contributing factors. International observers have praised the 2004 national election as free and fair (Iimi 2007). Good governance is reflected in the patterns of accountability and transparency in Botswana.

Good governance is also reflected in the development of infrastructure in Botswana. The revenues from diamonds were used to develop the health and education sectors. Furthermore, communicational facilities developed, and roads, airlines, and railways created opportunities for the advancement of the sub-Saharan country. Facing a tradeoff between considering diamond revenues as a tribal right or a national right, President Khama upheld the interest of the country and transferred the money to a national saving fund, thus sending a strong signal of good governance to the rest of the world (Beaulier and Subrick 2007). In terms of regulation, which is also a strong indicator of good governance, Botswana showed its strength. For example, the Botswana Telecommunications Authority that was established in 1996 is praised as one of th first independent regulatory authorities in Africa (ITU 2001). In terms of overall development, as Beaulier and Subrick (2007) note, the National Development Plans are written every five years and any amendments are passed by the legislature. These National Development Plans are designed according to the needs of the country and ensure the efficient management of state resources. It is therefore evident that, in general, good institutions have resulted in good governance and infrastructural development using natural resources, which then led to the progress of this outstanding African country.

CORRUPTION AND CONFLICT

The resource curse literature states that natural resources cause corruption and conflict, but the institutions in place are important factors in this regard. Natural resources give rise to tyrannical regimes, and the leaders use mineral wealth to suppress dissent and opposition. Resources are used to promote patronage networks and consolidate power by forgoing democracy. Such undemocratic and tyrannical regimes persist, and autocratic oppression varies in degree, based on the income from mineral resources. State ownership of resources affects the duration and intensity of conflicts (Luong and Weinthal 2006). Corruption, needless to say, becomes widespread. High mineral rents can therefore cause redistribution of wealth in favor of a certain group of beneficiaries who help the government stay in power or make re-elections possible, but how far this would worsen into the resource curse depends on nature of the institutions (Robinson, Torvik, and Verdier 2006).

Botswana has a history of peace with no significant corruption. As noted earlier, consolidation of the beneficial institutions guarding property rights were largely in the interest of the cattle-trading elites. Combined with the institutions of participation and accountability that imposed constraints on the power of the elites, they did not engage in the acts of stealin revenues from the trade of diamonds, unlike in other African resource-rich countries (Acemoglu, Johnson, and Robinson 2003). Institutions, hence, significantly affected the possibilities of  corruption in Botswana.

However, there are questions about Botswana’s true ability of keeping the country corruption-free. The Directorate on Corruption and Economic Crime, established in 1994, has continued to fight corruption since then. But the biggest criticism against it is that it reports to the President and not to the legislature (Eigen 2005). Furthermore, Kenneth Good (1994) writes about corruption in the bureaucracy, such as the Ministry of Education and the Ministry of Local Government, Lands, and Housing, pertaining to the signing of contract without tender competition for the supply of materials for the country’s primary schools in 1990. Bureaucratic confusion followed, resulting in the loss of millions of pulas (Botswana’s currency). Good (1994) writes details about the indebtedness and financial crises of the National Development Bank in Botswana in the 1980s and 1990s as the result of the accrual of loans by multiple ministers in the government. He also writes about the corrupt activities in the Botswana Housing Corporation, among many more (1994). Good goes on to claim that the “malpractices” in the country’s economy are “latent” and often “overlooked” by people who were once senior members of the bureaucracy, and that people often emphasize on the “relative efficiency” of the country in comparison to other African states (Good 1994, 500). In short, evidence shows that Botswana has corruption.

Botswana strives to keep corruption low, and takes measures to prevent conflicts. Overall, the bureaucracy has is “meritocratic” and “non-corrupt” (Acemoglu, Johnson, and Robinson 2003, 102). In spite of the presence of mineral wealth, Botswana’s exchange rate has not been overvalued and the government has spent money in the provision of public goods (Acemoglu, Johnson, and Robinson 2003). Transparency International reports that the Office of the Ombudsman, established in 1995, has exposed cases of injustice in the public service and has emitted information to raise awareness among the public (Eigen 2005). Botswana has an overall reputation of impressive economic management, low corruption, targeted public expenditure, transparency in the administration, and good rule of law (Molutsi 1998). Although there is always some room for curbing corruption to a greater degree by increasing transparency and strengthening the rule of law, corruption is not a very big problem. One of the reasons for this is that the budgetary and procurement process is relatively transparent (Iimi 2007). Iimi (2007) notes that Botswana’s constitution makes the country’s attorney general independent of its government and politicians. The institutional framework in Botswana is thus progressive and less favorable for corruption. Given that the country, in the 1960s, was one of the poorest in the world and then experienced consistently high growth rates for more than three decades, Botswana’s institutions deserve praise and the corruption present in the society should be discounted. Botswana’s institutions have also prevented conflicts that plague resource-rich countries. To reduce the possibilities of conflicts that surround mineral wealth, Botswana developed the Kimberly process by which around 60 countries certify the origin of rough diamonds. This process, even today, is peer-reviewed (Eigen 2005). Transparency and institutions of property rights and the spending for public goods through the use of resource proceeds have also helped satisfy people’s needs, thus leaving no reason for anarchy, retaliation or coercive opposition. Botswana is therefore successful in avoiding the corruption and domestic conflicts that accompany mineral wealth. Botswana is considered a model for other African countries to follow.

The development of its pre-colonial institutions passed down to the present day has resulted in openness, awareness, participation and accountability in Botswana. Various branches of the government and the society are bound together by strong bonds of transparency. Diamonds have introduced in Botswana the rapid buildup of wealth, progressive commerce through good governance, and the proper use of resource rents in infrastructure and human capital. Botswana is therefore a remarkable country that has avoided the resource curse.

THE DUTCH DISEASE

The term “Dutch disease” was coined to refer to the short-lived problems that Netherlands faced after its discovery of enormous gas reserves in 1959. The discovery of natural resources leads to the shifting of the factors of production to the rising natural resource sector and non-tradable sector. This results in the appreciation of the real exchange rate and hampers the competitiveness of the non-booming export sectors (Weinthal and Luong 2006). According to the Dutch disease literature, such should lead to domestic inflation and also hinder long-term growth by reducing the country’s economic diversity and increasing its reliance on exports from the natural resource sector. The Dutch disease functions through the resource movement effect and the spending effect. The resource movement effect operates when the booming sector takes capital away from other sectors and the spending effect movement takes place as the rents from the booming resource is spent on domestic goods and services (Corden and Neary 1982, 827). In the case of Botswana, it is evident that the country was able to sustain a good record of economic growth for over three decades. The resource movement did not hurt Botswana as the diamond industry is capital-intensive (Iimi 2007). The spending effect movement was not an invincible adversary because a large portion of the goods consumed in Botswana are imported, with three quarters brought from South Africa, thus reducing the effects on the non-tradable sector (IMF 2007). Weinthal and Luong (2006) write that Botswana acquired foreign reserves and carefully managed its exchange rate policy, and ran budget surpluses that were kept safe for stability spending during period of busts. Preventing wasteful spending during booms and by borrowing during busts, Weinthal and Luong (2006) argue, Botswana managed to secure economic growth. Therefore, it is concluded that Botswana managed to avoid the Dutch disease.

One can argue that Botswana suffers from the Dutch disease. But in considering this claim it is important to understand the specific case of Botswana and emphasize on the trajectory of its progress. Scott Pegg (2010), in his recent publication, writes that Botswana is not afflicted by a “classic Dutch disease” (19), but that it has got some of the symptoms of the disease, such as lack of resource diversification. Pegg notes from Davis (1995) that a Dutch disease should not be viewed as a temporary problem but a phenomenon that can operate over longer terms. The alternative steps that Pegg (2010) believes Botswana could have pursued are by investing resources in agriculture and cattle-farming and create incentives to attract “long-term foreign direct investment in manufacturing” (19). However, the fact that natural resources are what made infrastructural and human capital development possible should be given more importance over the problematic symptoms that prevail in the country. Botswana’s case bears uniqueness. Although Botswana has some problems that pertain to the symptoms of the Dutch disease, given Botswana’s history and massive growth and its journey from poverty to wealth, it is vital to highlight the successes rather than what the country lacks. Whereas natural resources have “cursed” many countries, Botswana’s brilliant use of diamonds is remarkable.

CONCERNS ABOUT BOTSWANA

In spite of the major positive political and economic outcomes of natural resources in Botswana, and its success in avoiding the resource curse through the development of its institutions, concerns about Botswana’s future remain. Richard Auty (2009) argues that although Botswana is successful in maintaining good institutions, “they remain untested by severe price shocks” (39). Since Botswana experienced a smooth stream of diamond rents with not fluctuations, any prospective shock to the rent flows would test the effectiveness of the country’s institutions (Auty 2009). This is in fact a dark side of Botswana’s sustained growth. The elites, the institutions, and the country altogether may be highly dependent on the expectations that this rent flow will continue. An economy and the stability of its institutions based on such expectations may be subject to unpredictable and extreme conditions that would then help scholars to truly assess the durability and strength of these institutions. It will open a way to analyze the changes, if any, in the behavior of the government, bureaucracy, and other soci political actors in times of crises. Uncertainty surrounds Botswana’s sustenance of economic stability and its institutions.

Botswana has certain areas within its economy that require attention. Given that the country is highly dependent on diamond revenue, and the economy’s stability rests on the market for diamonds to a great extent, elimination of traditional sources of revenue such as local tax, school fees, and water fees have exerted pressure on the government budget (Molutsi 1998). This suggests that Botswana should apply more prudence in its treatment of the economy. Although acts of increasing the general welfare is admirable, inefficient subsidization and free provision of services such as education, healthcare and livestock production may create undesirable levels of dependence on the government, the stability of which rests on the potentially unreliable flow of diamond rents. Botswana, therefore, needs to address some of these concerns carefully if the country wishes to maintain its prosperity.

Botswana’s economic prosperity does not conceal its social problems, just as it does not hide the current institutional vents from scholarly analyses. Botswana has one of the highest adult incidences of AIDS in the world, with over 25 percent of the population affected by the deadly disease (Acemoglu, Johnson, and Robinson 2003). In addition, ethnic minorities suffer from the lack of legitimate democratic representation. Their needs include having their own chief, councilors, and members of the parliament (Molutsi 1998). Along with a troubled society altogether, ethnic minorities continue to be underrepresented and the establishment of their sovereignty requires further reforms to the existing institutions.

The representation of women in Botswana also presents some deep concerns about the country’s institutions. As noted already, the kgotlas bestowed power on the men and women continue to lack political power even today. There are struggles in Botswana today that aim at increasing the status of women in the political process. Various groups and non-governmental organizations are encouraging and training women to run for political office, and are educating the people about the importance of women in society (Selolwane 2008). Upholding democracy requires that women get an equal say in politics as men. Therefore, institutions should embrace the rights of women to build up a stronger democracy that would help Botswana attain more success in the socio-political arena. Furthermore, women’s participation in politics would also send a strong signal to the international observers of Botswana’s progress in terms of gender equality and human rights.

CONCLUSION

Botswana, a landlocked country with vast desert regions, started off as one of the poorest countries in the world at the time of its independence in 1966 and experienced dramatic growth rates for decades. The country has avoided the natural resource curse. The institutions developed since the pre-colonial days continued to thrive in the colonial and post-colonial days, primarily due to the lack of British intervention in that region unlike in other parts of Africa. Th institutions promoted participation, freedom of speech, tolerance of dissent, obedience, and strict hierarchy and organization. These institutions, after the discovery of diamonds, facilitated the proper use of revenues and relative transparency compared to other African countries.

Reviewing the four major criteria, mentioned at the outset of this paper, for identifying the natural resource curse – bad governance, lack of infrastructural development, corruption and conflict, and the Dutch disease –  it could be concluded that Botswana enjoys relatively democratic and good governance, experienced notable infrastructural development, has minimal corruption, and faces no domestic conflict. Finally, in spite of various disagreements and predictions, as of now, Botswana does not have the serious problems that the Dutch disease inflicts on resource-rich countries. Botswana’s good institutions have truly made avoiding the resource curse possible.

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