Excerpt
Table of Content
1. Introduction
2. Analysis
2.1 Causes of Botswana’s Success
2.2 Is it Modern Economic Growth?
3. Conclusion
4. Bibliography
1. Introduction
Botswana is a landlocked country in southern Africa with a population of about 2 million people. It used to be one of the poorest countries in Africa, but after it gained independence from the United Kingdom in 1966, it went on a transformation to a middle-income country with a per capita GDP of $16,800 in 2012 (cf. Central Intelligence Agency 2013). Today, Botswana is a multi-ethnic and multi-party representative democracy with “inclusive institutions” and the least corrupt country in Sub-Saharan Africa (cf. Transparency International 2012). It is ranked by Freedom House as “Free” and has a very high HIV rate of 24.8%.
Botswana has been framed as an exceptional economic success story in Africa and the following essay will explore whether institutions are the only cause of Botswana’s economic success and if Botswana is experiencing modern economic growth.
2. Analysis
2.1 Causes of Botswana’s success
Acemoglu and Robinson write in their book “Why Nations Fail” that extractive political and economic institutions are a recipe for a state to fail and hence that it needs inclusive political and economic institutions for lasting and sustained economic success. In addition to that, Acemoglu/Robinson state in their model in essence that inclusive political institutions, which came into being due to centralization of the state, create inclusive economic institutions that in turn bolster the inclusive political institutions through economic success (see Acemoglu/Robinson 2012).
It will be argued that in the case of Botswana the Acemoglu/Robinson thesis for economic growth is not sufficient to explain Botswana’s economic success, because other indispensable factors, which are not covered by their thesis, contributed to Botswana’s growth explosion. Lewin explains Botswana’s success based on “Good Governance, Good Policies, and Good Luck” (Lewin 2011: 81). “Good Luck” in his explanation hints to Botswana’s economic success that depends largely on its diamonds, a natural resource and geopolitical contingency, and some other minerals. Botswana used to be only a “protectorate” under the British colonial regime and got lucky that their diamonds were discovered just one year after the country’s independence from the UK. Geopolitics matter and Botswana was not as harmfully influenced by a colonial regime as other African countries, which saved them from the usual vicious circle of other African countries (cf. Acemoglu/Robinson 2012: 408).
After the discovery of the diamonds, Foreign Direct Investment poured into the country and Botswana closed a deal with the founders of the diamonds, the international dominant diamond seller “De Beers”, who acted remarkably socially responsible in Botswana (cf. Nocera 2008). Today, the diamonds account for 1/3 of Botswana’s GDP and 70-80% of Botswana’s export earnings are from the diamond trade (cf. Central Intelligence Agency 2013). Clearly, “the discovery of diamonds was the most important catalyst in Botswana’s economic growth” (Nocera 2008) and not only its inclusive institutions.
Again, Botswana’s success after the discovery of diamonds is far from inevitable and actually, it was theoretically doomed to fail. It is landlocked and large portions of the country are infertile desert. But the biggest surprise is how Botswana avoided the usual resource curse for the most part so far. The resource curse is generally made up of 4 parts: Dutch disease, volatility curse, governance curse and the question of exhaustibility of the relevant resource. The infamous “Dutch disease”, coined by “The Economist”, describes an increase in income through exploitation of natural resources while the manufacturing sector (in the case of Botswana the agricultural sector) declines (cf. Collier 2008: 38ff.). This relationship renders the industrialization of a resource-exporting economy so unlikely (cf. Lewin 2011: 83). The second part, the volatility curse, points to volatility in commodity prices (boom and bust cycles), that can destabilize an economy. The governance curse describes the fact that the revenues of the resource export go straight to the government and that these resource rents often seduce politicians to a “survival of the fattest” (Collier 2008: 42). Last but not least, the question of exhaustibility of the relevant resource is an obvious one and can hit an economy hard if it is unprepared and not diversified enough. Lewin concludes for Botswana that it has actually dealt quiet well with three out of the four curses and remains only skeptical about the solution of the question of exhaustibility (cf. Lewin 2011: 84).
The revolutionary development of Botswana’s diamond export, paired with “fiscal discipline and sound management” (cf. Central Intelligence Agency 2013) that helped Botswana to avoid the resource curse to some extent, enabled it to become the African success story it is now known for. So institutions mattered to undoubtedly some degree, but Botswana is an example for a state which shows that institutions are not the only thing (probably a prerequisite but not a sufficient explanatory factor) that matter for economic success.
2.2 Is it Modern Economic Growth?
Botswana made an unprecedented journey in the scale and timeframe to a middle-income country. But is it also experiencing “modern economic growth? The World Bank claims: “Botswana is a development success story.” (World Bank 2013) – but is this true in terms of how economists understand development?
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