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Botswana: An African Success Story Shows Strains

Author: Stephanie Hanson
January 10, 2008

Introduction

Botswana is an upper middle-income country touted as one of Africa’s few success stories. The diamond-rich country enjoys stable economic growth, consistently ranks near the top of international anticorruption measures, and remains untouched by the political instability that has roiled so many African nations. But daily life in Botswana reveals a more complicated picture: The cost of food and fuel is up, unemployment is high, and the country copes with one of the world’s highest HIV/AIDS infection rates. In addition, the government is struggling to cope with a steady influx of Zimbabweans fleeing their country’s economic crisis. The Botswana government is working to encourage economic diversification, but such efforts have yet to produce results, illustrating the challenge that many African states will face as they attempt to grow in a competitive global economy.

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Political and Economic Stability

Botswana, a landlocked country of 1.8 million people in southern Africa, had the highest per-capita growth rate in the world for more than three decades after its independence in 1966. The bulk of this growth was fueled by diamonds, which were discovered in the early 1970s. Unlike many resource-rich African states, Botswana implemented prudent policies to manage its resources. The government owns half of the only diamond-mining company in the country, Debswana, and has directed diamond revenues into social development. “It wasn’t just the minerals,” says Baledzi Gaolathe, Botswana’s finance minister, in an interview with CFR.org. “It was also the way in which these minerals were exploited and the way the benefits of exploiting these minerals were shared between the government and the private sector.” An MIT paper concludes that such policies were possible because of Botswana’s good political and economic institutions, which protect property rights, preserve political stability, and constrain political elites (PDF).

Bolstered by its institutional strength, Botswana ranks near the top of many indices on governance. It is thirty-eighth on the 2007 Transparency International Corruption Perceptions Index, the highest ranking for an African nation. The new Ibrahim Index of African Governance ranks Botswana third on the continent, higher than its southern neighbor, South Africa. And the World Bank’s Doing Business 2008 report places Botswana fourth in sub-Saharan Africa and in the top third of countries worldwide.

Unless the economy diversifies, gross domestic product (GDP) will fall as much as a quarter after 2021. – 2007 IMF report

Botswana has so far avoided the pitfalls of the so-called resource curse, in which developing nations rich in natural resources—such as Nigeria—squander their gains. But its economic strength still overwhelmingly rests on diamonds. Diamond mining represented roughly one-third of gross domestic product over the past decade. In 2004, the diamond trade generated some $2.9 billion. This revenue allowed the government to expand into the largest employer in the economy (it is responsible for 40 percent of formal employment).  Such a lopsided economy, however, is not sustainable. The country’s diamond resources will be depleted in roughly twenty-five years, and unless the economy diversifies, gross domestic product (GDP) will fall as much as a quarter after 2021, concludes the International Monetary Fund (IMF) in a July 2007 report (PDF).

 

Efforts at Economic Diversification

The Botswana government is striving to diversify the economy, but it’s unclear whether its efforts will yield results fast enough to offset the impact of reduced diamond revenues, projected to fall off starting in 2017. Thus far, diversification has focused on export-oriented manufacture of textiles, leather, glass, and jewelry, as well as the establishment of an International Financial Services Center. But Botswana’s small market and proximity to economic powerhouse South Africa present steep barriers. Manufacturing is not feasible due to the high cost of imports and exports. South Africa already has a competitive advantage in service-based industries.

“We are resting on our laurels too much.” —Jonathan Mayuyuka Kuanda of the Botswana Institute for Development Policy Analysis

“We are aware of what the economies in Asia have done and we have been watching and seeing what lessons as Africa we can draw from such economies,” says Finance Minister Gaolathe. The government also tries to boost tourism and the agriculture sector, which used to account for a substantive portion of GDP but has fallen off since independence. Between 1979 and 2001, Botswana’s per capita agriculture production fell 64 percent (PDF).

Some suggest economic diversification efforts will only succeed if a culture of entrepreneurship is fostered among Botswana citizens. The government has several initiatives and agencies set up for small- and medium-sized businesses. One of these, the Citizen Entrepreneurial Development Agency, provides low-interest loans and mentoring to small business owners. It has created thirteen thousand jobs since its formation in 2000, but the cost of creating those jobs is substantial. Further, the loan collection rate is low—a mere 47 percent, according to an independent consultant’s review of the agency. The review suggests that the agency encourage more programs in agriculture, manufacturing, and tourism as opposed to retail and services. Critics of the agency suggest that developing entrepreneurship requires long-term planning and cannot be accomplished only with a low-interest loan program.

The IMF report recommends Botswana work to reduce the size of government, expand vocational training programs to meet labor market demands, and reform the labor market to encourage foreign direct investment (PDF). Botswana Institute for Development Policy Analysis, one of the only think tanks in Botswana, suggests in a 2007 report that civil society needs to be more robust, and the executive branch needs to work on developing policy research institutes that advise the government.

Slipping in Stature?

Botswana is considered a model for other African countries, but it still has a long way to go. Though the United Nations believes that HIV/AIDS has reached a plateau in southern Africa, at 24 percent, Botswana’s adult HIV prevalence rate is the second-highest in the world. About one third of the population lives below the poverty line. Many people in the capital, Gaborone, have mobile phones, but they often don’t have ten pula (roughly $1.60 in U.S. dollars) to purchase airtime for outgoing calls. Only thirteen in one hundred people have access to the Internet, according to the World Bank.

Growth in sectors other than mining—including agriculture and manufacturing—has been minimal. Unemployment hovers between 22 percent and 25 percent, according to the BIDPA (official unemployment is 17 percent). This is roughly double unemployment in countries with similar income levels. Jobs are scarce, and competition for available positions—particularly for well-paying government jobs—is keen. The government has tried to mitigate poverty by increasing expenditure on social programs, which more than doubled between 1997 and 2005.

Some of Botswana’s economic troubles are unavoidable. Its small population and landlocked position means it relies on South Africa for imported goods. According to the World Bank, the cost of importing and exporting goods is significantly higher than the regional average. Though the economy is open, foreign direct investment is concentrated in mining and lags behind that of adjacent countries, including Mozambique.

The World Economic Forum’s Global Competitiveness Index says Botswana’s competitiveness declined (PDF) by nine positions in 2006 (ranking 81 out of 125 countries) by comparison, South Africa remained ranked at 45. “The erosion of Botswana’s competitiveness should be of great concern to the country,” says a report from Botswana’s Export Development and Investment Authority.

“It used to be a shining example,” says Jonathan Mayuyuka Kaunda, a public policy expert at BIDPA. “Other countries are catching up.” He says there is a problem with political complacency in Botswana. “We are resting on our laurels too much,” he says.

A Ticking Clock: Improving Education and Productivity

Transforming an economy also entails transforming its workforce. In Botswana, that workforce is quite young—according to the 2001 population census, nearly 68 percent of the population is under thirty. Thus, Botswana’s government has spent heavily on education. In 2006, some 20 percent of budget was allocated to the ministry of education. By comparison, the ministry of health, which provides free antiretrovirals to the population, received a little more than 6 percent. Finance Minister Gaolathe is emphatic about the importance of education to improving the country’s competitiveness. Botswana currently has just one university—the University of Botswana. It will soon include the country’s first medical school. An international university of science and technology is also in the works. Such an institution is sorely needed, says Kaunda. Currently only 12 to 15 percent of graduates are in science and technology fields.

“We are constantly watching the transformation of the economy so that in our training efforts we can direct people to those courses which we believe will be or are in demand,” says Gaolathe. One area of special focus is agriculture. The government believes there is an opportunity to increase production and decrease food imports from South Africa. In addition, more than half the population is dependent on subsistence farming. Cattle raising, in particular, is a hallmark of the country’s culture. Through a Young Farmers Fund, which began disbursing funds in 2007, young people can apply for loans to purchase equipment for farming projects. Seventeen loans have been awarded since April 2007, but the program is too new to evaluate.

“We are aware of what the economies in Asia have done and we have been watching and seeing what lessons as Africa we can draw from such economies.” Finance Minister Baledzi Gaolathe

Only 7 percent of students go on to tertiary education, but Botswana is graduating skilled workers faster than it can employ them. University graduates want white-collar jobs, but the economy hasn’t diversified quickly enough to generate them. They face the predicament of being overqualified for some jobs, and under qualified for others (there is still a shortage of skilled doctors, engineers, and architects). As Gaolathe noted in his 2006 budget speech, “Botswana workers have become selective in the jobs they are willing to accept, choosing instead to rely on relatives or social safety nets.” The positions that are available—low-skill positions in construction or domestic help—are often filled by Zimbabwean migrants, who are desperate for work.

The influx of Zimbabweans to Botswana has benefited the economy, but as it continues, the strain on government services has mounted. Estimates of the number of Zimbabweans in Botswana range from two hundred thousand to three hundred thousand. Initially, Zimbabwean professionals found jobs—as engineers, doctors, or accountants—that Botswana lacked skilled local workers for. These positions have largely been filled, and as a result highly educated Zimbabweans are taking menial positions that Botswana citizens will not, much like Mexican immigrants in the United States. The government arrests illegal Zimbabwean immigrants and sends them back across the border, but many return just days later. “It’s a vicious cycle,” says Moses Gaealashwe, Botswana’s director of immigration. Between April and November 2007, the government repatriated over twenty-three thousand illegal immigrants, the majority of which were Zimbabwean.

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