by Assel Serikbayeva

Over the past couple of decades, the topic of achieving sustainable development and growth in natural resource abundant countries has received considerable attention from scholars and policy makers alike. Most commodity exporters have followed a variety of policies and recommendations in numerous attempts to achieve sustainable development and economic growth. This article sets to examine different factors that attributed to better development of resource abundant countries by analyzing the example of Botswana and its good governance as a prerequisite for sustainable economic growth and prosperity.

 

Most commodity exporting countries face a difficult task of achieving sustainable development. They need to change their economic growth models and create more diversified economies with less reliance on extractive industries, especially at the time of more volatile and lower commodity prices and, as a result, reduced investment in their economies, and slower economic growth. They need to diversify their non-commodity tradeable sectors toward value-added industries with large spillovers to the rest of the economy and high productivity gains.

While most developing countries reliant on natural resources have implemented policy reforms and strategies on strengthening their economies, there are only few successful examples. Apparently, the degree of success or severity of failure to a large extent depends on implementation of appropriate government policies. As the Global Economic Prospects, the World Bank’s flagship report, states, “policy will continue to play a critical role” in improving non-commodity sectors of economy by focusing on structural reforms and sound institutions (2015).

Indeed, a large number of the poorest countries fail to develop and remain dependent on exports of their mineral wealth. However, resource abundance can be correlated with economic growth. In fact, many developed and economically successful countries such as the United States, Canada, Australia, Norway, and others have abundant natural resources and were or still are dependent on that mineral wealth. Chile, the Latin American top performer, as well as two richest African countries – Botswana and South Africa – owe much of their success to natural resources. To sum up, mineral wealth by itself is not necessarily a curse. The fact is that many countries tend to waste their resources, the presence of which contributes to economic stagnation and poor decision making.

Botswana is a good case for analysis due to its vast amounts of natural resources, its unique resource transportation geography, its sound public policy, and common to all commodity exporters economic diversification challenges. In fact, Botswana stands out as a development success story among other developing raw material exporters. The country is among the few economies that avoided common pitfalls of commodity booms and has managed an impressive record of both good governance and economic growth (World Bank, 2014).

A landlocked state of two million people and once one of the poorest countries in Africa, Botswana has become one of the fastest growing economies in the world. According to the International Monetary Fund, Botswana has made “an impressive record of prudent macroeconomic policies and good governance, which has moved the country from being one of the poorest in the world to the uppermiddle income range” (2008). Indeed, since gaining independence in 1966 the country has moved into the ranks of upper-middle income countries with the real GDP growth rate of an average 5 percent annually (World Bank, 2016).

Botswana has maintained a stable multiparty democratic government since independence in 1966 and is often cited as the foremost example of good governance in Africa (Maipose, 2008). In fact, Botswana ranked best among all African states on Transparency International’s corruption perception index (2015). Botswana constitution established a multiparty nonracial democracy at independence. The document maintains basic freedoms and rights, and an independent judiciary. The ruling party on the central government level peacefully coexists with the opposition party that controls some local governments (Maipose, 2008). Democracy along with political stability, the rule of law, and transparency have contributed to the sustainability and successful development in Botswana.

Primarily reliant on agriculture and heavily dependent on external aid, the country’s economy grew rapidly as a result of the development of the mining sector. Despite its huge mineral reserves, Botswana has directed a development path in a way that has largely avoided the resource curse as well as the Dutch disease. Economic performance has been closely linked to state governance decisions such as the vesting of subsoil rights by the central government instead of local authorities, decision to negotiate equity shares avoiding nationalization of mines, and reliance on foreign expertise with gradual localization (Maipose, 2008). Unlike in the rest of the region, these policies did not threaten private foreign investors bringing technical knowledge and management competencies to the country as well as helped to avoid land disputes over mineral rights. The country pursues an open policy toward foreign investment in addition to a nonaligned foreign policy. This approach has diversified and maximized inflow of foreign capital that played a crucial role in the country’s development effort. Stable government was able to attract foreign investors into the mining sector by the means of the “smart partnership” (Maipose, 2008).

One of the growth-promoting policies Botswana leadership has adopted was the decision to join the monetary union within the Southern African Customs Union then known as Southern African rand monetary area shortly after independence. It limited the country’s discretion over its monetary policy despite the temptation to engage in deficit financing taking into account its limited economic and manpower resources (Maipose, 2008). Botswana then replaced the rand with the pula in 1976 in its interest of pursuing independent economic strategy with growing aid and mineral revenue, however still remains a member of the Customs Union. In fact, Botswana government was able to renegotiate the revenue distribution formula within the Union in 1968 that ensured a bigger inflow of customs revenue for the needed infrastructure development (Harvey and Lewis, 1990; Maipose, 2008).

Another important policy choice was development planning. Formulation and implementation of the country development plan served as an instrument for mobilizing and managing resources. Each development plan in Botswana seeks to promote its national Principles of democracy, development, selfreliance, and unity. That in turn leads to the four overall national development objectives: rapid economic growth, social justice, economic independence, and sustainable development (Maipose, 2008). Botswana’s economic development strategy uses natural resource revenue to improve social and economic conditions in the country as well as to create new economic opportunities while encouraging foreign investment at the same time. This strategy is believed to have the potential for achieving sustainable growth, because human and physical capital are renewable while mineral endowment is finite (Bank of Botswana, 1997).

In addition, government overlooks inflation and the current account balance in consistency with a policy of managing boom-and-bust cycles.  In fact, the inflation rate has been comparatively moderate: the government policy was not to increase salaries of public servants because of projected deficits even during the sensitive election years of 1994 and 1999 (Maipose, 2008).

Accordingly, economic performance went in hand with impressive social gains as a result of heavy government investment in socioeconomic infrastructure. Public expenditure in the social sectors was around 10–12 percent of GDP throughout 1980s compared to just 4 percent in 1973 (Maipose, 2008). Botswana government annually spends around 40 percent of the country’s GDP a year on infrastructure and human capital. The figure is amongst highest in Africa, comparable to that of Norway (Acemoglu, Johnson, and Robinson 2003; Leith, 2005; Maipose, 2008).

References

Acemoglu, D., Johnson, S., and Robinson, J. (2003). “Understanding Prosperity and Poverty: Geography, Institutions and the Reversal of Fortune.”

Harvey, C., and S. R. Lewis. (1990). “Policy Choice and Development Performance in Botswana.” Houndmill, United Kingdom: MacMillan.

International Monetary Fund Official Website. (2015). www.imf.org

Leith, J. C. (2001). “Growth and Structural Transformation in Botswana.” In Aspects of the Botswana Economy: Selected Papers, ed. J. S. Salkin, D. Mpabanga, D. Cowan, J. Selwe, and M. Wright. Oxford: James Curry.

Lewis, S. R. Jr. (2005). “Explaining Botswana’s Success: The Importance of Culture” https://apps.carleton.edu/campus/president/slewis/speeches_writings/botswana_success/

Maipose, G.S. (2008). “Policy and Institutional Dynamics of Sustained Development in Botswana.” Working Paper 35. The International Bank for Reconstruction and Development / The World Bank on behalf of the Commission on Growth and Development.

Sarraf, M. and Jiwanji, M. (2001). “Beating the Resource Curse: The Case of Botswana,” Environmental Economics Series, Paper 83, World Bank.

United Nations Official Website. (2015). www.un.org

World Bank Group. (2015). “Global Economic Prospects, June 2015: The Global Economy in Transition.”

World Bank. (2014). “Botswana Country Overview,” http://www.worldbank.org/en/country/botswana/overview