The resource curse is the theory that countries with an abundance of natural resources, such as oil and minerals, achieve less economic growth than countries that are not endowed with natural resources. There are authors that argue this point (Auty 1990, Gelb 1988, Sachs and Warner 1995, 1997, 1999) and there are those that believe the resource curse is less to do with resources and more to do with political management (Brunschweiler 2008a, 2008b, Ross 1999, 2001).
This theory appears to be contrary to the immediate instinct felt by many that natural resources will provide an opportunity for countries to develop by using increased revenues associated with a discovery of resources or an increase in world prices of such resources.
The first section of this paper discusses a few of the most important mechanisms in which the resource curse can manifest itself. These are through institutions, corruption, conflict, Dutch disease and human capital. The second section studies the case of Botswana by providing an understanding of Botswana’s economic and development path I will investigate how Botswana avoided some of the traps resource abundant countries usually fall into and how Botswana managed diamond mining in order to benefit the country. I will also perform a small comparison between Botswana and Sierra Leone to highlight the different channels in which resource abundance can affect economies.
In my final chapter I will analyse whether Botswana has been successful in fully escaping the resource curse symptoms by discussing any problems the diamond mining may have caused.
This paper, whilst small, highlights the importance of investigating phenomena such as the resource curse. Many countries have fallen into poverty since the emergence of extractable resources in their economies, yet Botswana has managed to avoid such problems. It is important to analyse how Botswana did this, so that lesson may be learned and used to help other countries avoid such problems in the future.
Chapter 3: The Resource Curse Literature Review
Explanation of resource curse
There are examples of resource poor countries outperforming resource rich countries throughout history. In recent times the Asian Tigers have achieved fast industrialization and economic growth despite having few natural resources, where as diamond rich countries such as Sierra Leone still remain low on world economic and social indicators (World Bank Development Indicators 2009). But do natural resources always lead to poor economic development? Or are there other variables in the context of which the natural resources are placed that determine economic development?
There has been much discussion on the resource curse topic. Prominent among them are studies by Sachs and Warner (1995, 1997, 1999). Although in the conclusion to the paper Sachs et al admit their findings are “far from definitive” the general findings are that there is “evidence for a negative relation between natural resource intensity and subsequent growth” (Sachs and Warner 1995:p27). They analysed data from 95 developing countries by looking at annual growth rate between 1970-1990 and resource based exports in 1970. Sachs and Warner classified ‘high abundance’ of natural resources as exports of agriculture, mineral and fuel as a percentage of GDP. From this simple analysis they discovered the existence of the so-called resource curse and they then tested the theory by controlling a number of other variables that could explain the relationship between resources and slow economic growth.
The following discussion will provide a summary of the key mechanisms identified in the literature.
However it is important to note that not all academics support the literature on the existence of the resource curse, Brunnschweiler (2008a) is the most prominent. The main critiques of work by Sachs and Warner are the variables used to measure resource wealth. Brunschweiler for example believes per capita mineral wealth is more appropriate. The question is also raised as to whether Sachs and Warner were right to include agriculture in their regressions. Although agriculture is indeed a primary natural product, as it is the outcome of utilising the resource of land, it can be said that agriculture takes a different path in the economy than minerals or fuel. It may be better to classify agriculture separately when considering the resource curse, especially in the context of the third world where many economies are agricultural based. Further in this paper I will analyse whether agricultural resources cause the same effects on the economy as mineral resources.
Arguments against the Resource Curse
Big push theory
Whilst there is no denial that the resource curse has effected countries like Venezuela, Nigeria and the Congo (Wenar 2008) there have been cases such as Botswana and Norway that have given strength to the opposing ‘big push’ theory. In the big push model, developing economies are stuck in a trap. In order to develop their economies they need to industrialize so they are able to create wealth of their own. However there are large fixed costs associated with industrialization that developing economies cannot afford. Thus, the name big push comes from the idea that developing economies require a large injection of capital in order to develop. This injection of capital can be used to invest in economic infrastructure and will allow a more rapid accumulation of human capital which further allows social and economic development. (Murphy, Shleifer and Vishny 1989, Birdsall et al 2000)
Ironically, this injection of capital could arise from large resource revenues, which suggests that the resource curse may be avoided if the capital is handled in a productive manner, for example a long-term and sustainable plan.
An important point made by Walker and Jourdan (2003) is that as access to resources and minerals is becoming easier due to decreased transportation costs, countries are able to sustain industry without having a large natural resource base. This is could mean that countries who are not resource abundant might be better off, as they experience less adverse side-effects that I will discuss in this paper than resource rich economies.
The first effect, cited by Sachs (1995) and many others (Norberg 1993, Gelb 1988) is the Dutch Disease. Although it is often linked to the discovery of a natural resource, Dutch disease can occur when there is any positive income shock. For example a significant rise in primary product world prices can create sudden increased revenues for primary product exporters. The earliest Dutch Disease model I can trace was first created by Corden (1984) and the model has been constantly remodelled and analysed by other academics since.
There are two strands of the Dutch disease model, the resource movement effect and the currency appreciation effect.
Currency Appreciation Effect
Dutch disease is often known as de-industrialisation because as one sector of the economy booms, (in the case of this paper we are talking about the tradable natural resource sector) other tradable sectors of the economy become less competitive. This is because a sudden increase in exportation of a natural resource of any kind can cause currency appreciation (Dutch disease). Whilst this is good for the country as it makes imports cheaper, it makes all the exports from the country (apart from the natural resource) less competitive in the world market as it costs other countries more money to from that particular country. The same path is also true for investment in this sector. This is why the manufacturing sector of resource abundant countries often shrinks.
Resource Movement Effect
The resource movement effect is the relocation of production factors away from the manufacturing sectors towards to booming (natural resource) sector. Davis and Tilton (2005:238) believe “the Dutch disease actually allows a country to benefit from its new found mineral wealth by encouraging resources to flow from other sectors of the economy to the booming sector:” However, this resource movement is also a cause of the shrinking of the manufacturing sector noted above.
An important point argued in Sachs and Warner (1997) is that the shrinkage of a manufacturing sector itself is not a problem. The problem arises when the shrinkage causes slow economic growth, such a case may occur when an economy becomes more dependent on their natural resources. The advisability of this is not good (Jefferis 1998) as the economy becomes more vulnerable to world price changes in the natural resource. In turn, these often volatile price changes make it hard for governments to make mid or long term economic plans and policies. This is often said to be what happened in the oil rich Middle East in the 1970’s (Auty 1990) governments were over optimistic about the earning power of their resources and then the oil prices fell dramatically.
However the shrinkage of the manufacturing sector can have a negative impact on the economy because productivity grows faster in the manufacturing sector than in the resource sector (REF) and a decline in this sector means the economy is losing out on this productivity. A similar argument is made by Gylfason (2001) about learning-by-doing and technological advances. The shrinking of a tradable manufacturing sector also creates job losses; usually this could be compensated for as the primary product resource sector expands. But most minerals and oil sectors are capital intensive and not labour intensive (Sarraf 2001), so they are not able to absorb the unemployment.
Another strand of the resource curse theory is the analysis of the relationship between resource abundance and institutions. Defining institutions is a difficult job as it can involve many different aspects of a countries history, culture and government. The main reason why institution analysis is vital to discovering the relationship between resource abundance and economic growth is that institutions affect policy structure and policy structure sets the arena in which an economy and resources are managed.
Firstly, the history of a nation can go a long way to explaining the current situation a nation faces today. Acemoglu et al (2001) notes the importance of colonisation is the determination of institutions. In his view there are two types of colonisation. There is settlement colonisation whereby the colonisers decided to settle in the region, perhaps due to a low incidence of deadly infectious diseases, as occurred by the British in North America. The settlement colonies are mostly made up of the ‘new world’, such as North America and Australasia.
The second type of colony are extractive colonies, whereby the colonisers extracted resources that they found valuable, be it people as slaves or minerals. Naturally, these two different paths have caused quite different outcomes in institutions. Intuitive thin\king would lead us to believe that traits of a colonisers such as property rights and rules of law would be embedded in there colonies. Indeed, Murshed (2001) and Acemoglu et al (2001) publish papers along the same lines. This theory leads to the thinking that colonies with exploitative colonisers tended to not establish foreign ‘good institutions’ to the same strength as settled areas. It could be argued, as by Murshed, that patterns of exploitative behaviour with regard to resources were learned and inevitably repeated by colonies. On the other hand, settled colonies tended to retain institutions of law and property rights that European colonisers may have brought over.
Acemoglu has raised the point that different colonising nations have left very different institutions behind. For example, he argues that the British colonies “inherited better institutions with regard to respect for the rule of law and democracy” (Acemoglu et al 2001:p12). In either case it is evident that institutions brought in from Europe have remained in some form. However, we must not forget that the colonies of Africa, Asia and Latin America existed long before they were discovered by the Europeans. Prior to colonisation these countries had their own functioning political and social institutions and it could be that European invaders only adapted these institutions to fit their needs and left many existing ways intact.
A small but important point to note is that colonisation could also have had an impact on the ethno linguistic and ethno fractionalisation of a country because artificial country borders were placed upon areas of land with no regards to considering the existing, and it could be argued natural, borders. These artificial borders were emplaced for the ease of the colonisers and very little consideration was given to existing social borders, for example between tribes or geographical boundaries. This enforced ethno fractionalisation can be the cause of conflict within a country, even if natural resources are not in the equation, a prime example of this is in Rwanda.
Leite and Weidmann (2002) are of the opinion that resource wealth does not directly affect economic growth, but that it resources affect the likelihood of corruption, which therefore influences economic growth. Bulte, Damania and Deacon (2005) further this argument by pointing out it may not be the existence of institutions that matter but the quality. In Bulte et al (2005) analysis they differentiate between two types of resources. Point resources which are geographically based and therefore “an abundance of these resources are typically associated with inequality in terms of power and the division of the surplus, and often are accompanied by vertical relationships between agents (shareholders, managers, labourers).” (Bulte et al 2005:p1031). Whereas diffuse resources, such as agricultural land, are more geographically spread and are therefore more equally distributed and less able to be protected by an elite. It is the belief of Bulte et al (p1034) that point resources attract worse quality institutions than diffuse resources with regard to corruption and government performance.
An abundance of natural resources provides substantial revenue for an economy but unfortunately in many developing countries where there are weak infrastructures and poor people, the temptation of this revenue can cause corruption especially in the political sphere. When a government experiences large flows of finance, especially if these flows are relatively sudden, for example a discovery of minerals or oil, or new technology that helps extract resources, it can be hard for a government to manage such flows (Dietz 2005). They may not have had experience in dealing with large sums of money. These sudden windfalls increase the opportunity for corruption as it is hard to keep track of the money and therefore it is easier and to steal and waste.
Corruption also comes in the form of laziness. The political elite may chose to ensure they remain in power by buying political favour using the resource revenues. This undermines democracy, but as politicians are able to obtain large sums of money from resources it is easier to buy political favour than to develop good policies and there is little incentive to build infrastructure in other areas of the economy, as resources are the main source of income.
One would assume that if areas of the economy were to start failing or not being developed and maintained to a satisfactory standard of the citizens then the citizens would demand action from the government. However, in circumstances where an abundance of resources are in the country, the government often tries to buy favour from the people by not taxing the citizens, instead they use the resource revenues to provide basic infrastructure, such circumstances could be classed as the rentier effect cited by Mehlum (2006) and Brunschweiler (2008a).
On the other hand, the government could decide to use the resource revenues to aid them in an effort to block the formation of social groups. The government might try to do this because they fear groups independent of the government may demand more from a government that is unwilling to give more. As Ross (2001: p335) argues “Scholars examining the cases of Algeria, Libya, Tunisia, and Iran have all observed oil-rich states blocking the formation of independent social groups; all argue that the state is thereby blocking a necessary precondition of democracy. This is one of the many ways resources appear to affect politics.
Whilst the basics are still provided and the people have more money in their hands, the situation can cause problems as the government is not longer held accountable as it is not using the people’s money. Therefore the relationship between government and citizens breaks down. This leads to a less democratic society and one that Karl (1997) believes would be one more vulnerable to civil war.
As previously discussed weak institutions and corruption can both lead to conditions that breed conflict as they diminish the government’s ability to function properly. Although a lot of studies are unable to show a strong link between resource extraction and civil conflict (Ross 2004), in recent history there have been many examples of the internal conflict within countries that are abundant in diamonds, such examples are Sierra Leone and Angola. Collier and Hoeffler (2001) cite that war emerges as either a product of grievance or greed. In the case of natural resources it appears that greed is most likely due to the enormity of the revenues compared to other forms of government revenue.
The conflict often takes the form of civil war within a country as fractions of society jockey for control over the resource wealth (although the conflict can also take the form of hidden conflict within governments). Collier (2004) suggests that high social and economic inequality, lack of political rights and religious or ethnic divisions in society cause civil wars. The presence of natural resources can act as a catalyst by highlighting these faults and at the same time creating a financial incentive for war. If conflict does occur then (Brunschweiler 2008b) believes it “could be the case the conflict makes countries dependent on resource extraction” which is the default response when other economic sectors are not performing well. This indicates that once a country enters into conflict due to resources, they may have entered a vicious cycle that will be hard to stop.
Fractionalisation within resource abundance societies has been greatly studied (Easterly and Levine 1997, Brunschweiler and Erwin 2009) as it is believed that societies that are fractioned by class struggles, ethnicity or religion have weaker institutions (Hoedler 2006). In turn weaker institutions lead to a diminished ability of the government to control situations and therefore fighting is more likely to erupt (Arezki et al 2007). Whilst the fragmentation in society is the basis for the fighting, the presence of resources can be seen as the trigger or catalyst for conflict. Fighting is bad for economic growth as it decreases productive activities, which lowers productions and lowers incomes (Hoedler 2006). Therefore in general the consensus is that the more homogeneous the society, the less likely the risk of conflict.
Having high revenues from resources can also lead to rentier state symptoms as discussed previously. In this case it may be that those in control of resource revenues are constantly on the lookout for opposing groups trying wrest control from them. Unfortunately as they are the ones controlling the revenues, they have money to repress citizens by not only repressing social groups but by employing armed conflict if they require. This is why (Brunschweiler 2008b) believes that as governments are able to fund themselves they are more likely to be authoritarian. Although Ross’s (2001) paper primarily discusses the Middle Eastern oil states, he admits that his findings can relate to other mineral economies outside the Middle East. This repression can also distort the economy by squashing entrepreneurial talent (Alayli 2005)
However there are some scholars who believe that resource abundance can actually help avoid conflict, for example, Brunnschweiler and Bulte (2008b) say “resource wealth raises income, and higher incomes, in turn, reduce the risk of conflict”. However, they admit it is a small reduction in risk and it could be that the large ‘prize’ (resource revenue) that people are able to fight over is a stronger incentive than higher incomes.
The link between ethnic fragmentation and the resource curse has been investigated in a paper by Roland Hodler (2006). The aim of his paper is to explain why resources can be a blessing for some countries and a curse for other. For him, there are two effects of natural resources. Firstly, income of a country rises if the country chooses to use the resource for its own industrial benefit or exports them to other countries; this is a direct positive effect. Secondly, an indirect negative effect is natural resource wealth increases conflict, but only (according to Hodler) if there are multiple groups opposing each other. Hodler focuses on rivalling ethnic groups, but other groups that could affect the equilibrium are class groups and political groups. In Hodlers model the resource abundance is a blessing to a country if the direct positive effect is greater than the indirect negative effect, but a curse if the negative outweighs the positive and thus a relatively homogenous society is less likely to experience a resource curse as there are less opposing groups challenging the equilibrium.
Linked with this argument is that of Bannon and Collier (2003:3) that ethnic dominance alongside resource richness breeds conflict. Ethnic dominance especially in government or institutions has an important advantage because that race then have the power “in moderating and equalising ethnic relations, or neglecting and perhaps exacerbating them” (Good 2005:p31)
The magnitude of the negative effect in Hodlers paper is determined by the number of opposing groups. The higher the number of groups the weaker property rights. I take my definition of property rights from Acemoglu et al (2001) whereby people have secure property rights (rights against expropriation and that those ” with productive opportunities expect to receive returns on their investment’ and that a ‘broad cross-section of society have the opportunity to invest. Furthermore Acemoglu et al (2001) make the point that relative political stability is needed in order to maintain these property rights.
As we can see that the resource curse is interlinked with many aspects of economics. It is also linked with human capital: education and health. Education is important in economic development as it raises labour efficiency, provides a more participative society and a better quality of life (Barro 1997), but is educational development being affected by the resource curse? Evidence by Gylfason (et al 2001: p850) shows that “school enrolment at all levels tends to be inversely related to natural resource abundance, as measured by the share of the labour force engaged in primary production, across countries”. Questions could be raised about the validity behind using such measures and whether other measures are more appropriate but there is plenty of evidence from other authors such as (Birdsall et al 1997) which come to the same conclusion.
There are two prominent arguments about the effect the resource curse has on education and vice versa. Firstly, the vast revenues created by an abundant resource can be used by forward thinking governments to fund education (Sachs and Warner 1997). On the other hand, it has been argued by Gylfason that some resource dependent economies choose not to invest in education infrastructure as they see little immediate need for it because “high skill labour and high quality capital are less common in primary production then elsewhere” (Gylfason 2001: p10). However focusing on resources (and neglecting education) hinders the learning-by-doing process. This process is more likely to develop, along with gains in technological advances, in the manufacturing sector (Sachs and Warner 1995). Thereby depending on resources and neglecting education can slow economic growth as a whole as there is no incentive to increase the earning power (both at individual and national level) that can be achieved through education. It is also worthy to note that education is strongly linked with a higher rate of absorbing new technologies from other countries (Birdsall 1997).
Chapter 4: The Case of Botswana
Although in the previous section I discussed ways in which an abundance of natural resources could lead to slow economic growth, there have been countries that are resource rich and have had good economic development: for example Norway and Botswana. Norway became one of the top scoring countries on both economic and social indicators in the world (Larson 2003) since the extraction of oil in the early 1970’s.
Graphs showing growth of Botswana compared to other African nations here
In this section I aim to discuss the experience of Botswana through the same key mechanisms I used in the previous chapter. These mechanisms are Dutch disease, institutions, conflict and human capital. By using the same key mechanisms I hope to show how Botswana has avoided the problems that cause the resource curse.
Botswana has developed relatively rapidly considering that Botswana was the third poorest country in the world before independence (Beaulier 2003:p233) As Acemoglu et al (2001) points out there were only 22 graduate Batswana, who studied outside the country and only 12km of paved road. It seems that Botswana was in the same position as the majority of Sub-Saharan Africa. But since “the average growth in Africa has been negative since 1965” (Acemoglu et al 2001) how has Botswana managed to achieve the “highest rate of per capita growth of any country in the world in the last 35 years” (Acemoglu et al 2001)? Especially considering that as a resource rich country it could be expected that Botswana would have slower growth than those without resources.
There are contradicting views as to whether Botswana experienced Dutch disease and whether this was due to the presence of diamonds. Mogotsi (2002:129) thinks that a mild Dutch disease occurred in Botswana as there was no large pre-existing manufacturing sector, so when mining occurred, the skilled labour from the small manufacturing sector moved to mining. Less skilled agricultural workers filled the place of the old manufacturing workers. As they are less skilled there is some loss of productivity and efficiency in the manufacturing sector.
However Pegg (2009:p2) believes that there is “little evidence that agriculture or manufacturing in Botswana has suffered from Dutch disease effects” like the Dutch Disease model predicts when there is a large tradable mining sector. This is because there is very little resource movement as the diamond industry in Botswana as diamond mining is capital intensive and site specific (Jefferis 1998). This lack of movement means that few positive externalities are present in Botswana’s mining industry. This is evident in the employment rates. Whilst Botswana has many good economic and social indicators, unfortunately a high unemployment rate is not one of them. “While mining production contributed 40% to GDP, it absorbed only 4% total employment” (Iimi 2006a:p7). This has large implications for income distribution and inequality in Botswana. As wages are higher in the diamond industry (REF) it distorts wealth in the economy.
It has been said that only around half of the population have benefitted from the increased revenues, outside of gains in education, healthcare and infrastructure. This is reflected in around 50% of the population still living below the poverty line despite GDP per capita being around $1000 as there is a small workforce for diamonds and a high unemployment rate in general. (http://www.thuto.org/ubh/bw/bhp5.htm)
However, in the resource curse theorem if Dutch disease were to occur then imports would be cheaper. As Botswana is 80% Kalahari Desert (Beaulier 2003) agriculture is not a major industry and as such Botswana imports most of its needs. 75% of imports come from neighbouring South Africa (Iimi 2006b:p18) there are very little visible effects of the negative sides of Dutch disease.
Currency appreciation is the most obvious side-effect of resource related Dutch disease. But large diamond revenues have not caused Botswana’s currency, the Pula, to be consistently overvalued. (Pegg 2009:p4) Although Botswana faces a difficult situation with regards to exchange rates. Botswana must managed the exchange rates carefully as it imports 75% of its goods from South Africa (REF) but Botswana’s exports are valued in US dollars. Therefore Botswana must try to keep the Pula stable against both the South African rand and US dollar at the same time to avoid increased prices of food or decreased earnings due to falling dollar prices. So far Botswana has managed this well.
Botswana has also been forward thinking by accumulating large foreign exchange reserves (Jefferis 1998) which are important and useful to have because it gives them the ability to manipulate exchange rates to aid the domestic currency should it need it.
The government also created the Public Debt Service Fund (PDSF) in 1972. It recognises that the diamond revenues may be beyond the government’s absorptive capacity and so the PDSF allows the government to save money rather than overheat the economy by spending it. (Pegg 2009:p3).The Revenue Stabilization Fund (RSF) is especially useful in times of economic downturn like the current financial crisis, as they government are able to finance normal spending by using the savings rather than borrowing.
Of course, although good governance has caused what is seen to be a success with regards to revenue management (Samatar 1999; Leith 2005), it has also been said (Pegg 2009:p2) that “stability of rent streams” also helped Botswana control the massive flows and not fall into resource related Dutch disease. This has also led Botswana to move ‘upper middle income status’ in the World Bank classification. This is impressive as before independence Botswana was classified as a ‘low income’ country. (World Bank Income Classification).
Several authors have put forward the argument that inclusive pre-colonial institutions are responsible for Botswana’s economic development as institutions are a reason why food policies are chosen and also enable good policy choices to stick. Beaulier 2003)
Before colonisation it seems that Botswana society was generally inclusive. An important institution of traditional Botswana society is the role of kgotlas which are an “assembly of adult males in which issues of public interest were discussed” (Acemoglu et al 2001) Botswana society allowed open dissent of the King and chiefs in kgotlas which provided a fair and accountable society.
A further point argued by Acemoglu et al (2001) and also by Englebert (2000) and Iimi (2006a) is that the relatively unintrusive nature of British colonialism left a lot of traditional and functional institutions intact. During the scramble for Africa in the 1800’s Britain agreed to granted Botswana protectorate status requested by Batswana chiefs in 1885 (Beaulier 2003). The chiefs wanted protection from the South African Boers who were moving towards Botswana. However, Britain “apart from protecting from invasion the British had no real interest in actively managing Bechuanaland’ (modern day Botswana) (Beaulier 2003) as they believed there was not much worthy of extraction and Britain also didn’t want to take on another expenditure when it already had to finance India, South Africa and Zimbabwe (Beaulier 2003) For Britain the main reason behind granting Protectorate status was to stop the Germans progressing further into central Africa once they had captured Namibia. (Beaulier 2003) As such, the light colonisation did not leave much in the way of social and physical infrastructure” (Beaulier 2003:p228). When we relate this to the resource curse theory that having good institutions enables resource wealth to be managed appropriately, we can see that although Botswana was colonised they did not leave behind much infrastructure. As it was neither extensively settled by the British nor extensively exploited it appears that Botswana escaped the extremes of colonialism. The two institutions adopted from Britain by Botswana that appear to have had good effects on society are the adoption of the Westminster parliamentary system and common law legal code (Beaulier 2003:p234)
Independence came in 1966, when the British Bechuanaland Protectorate became an independent member of the British Commonwealth. Although Botswana became a republic after independence it “maintained Tswana cattle-owner hierarchy and royal family descendants got presidency” (Englebert 2000:p14). The first President of Botswana was Seretse Khama who was Chief of the Bamangwato tribe. He has been praised by many academics (Iimi 2006a and Englebert 2000) It appears that he has put Botswana on the right path since independence. Unlike a lot of African leaders, Khama decided to adopt developmental policies above a Marxist stance (Beaulier 2003). His reasons for doing so may be because his leadership was legitimate. As Englebert (2000:p14) says “in historically legitimate states such as Botswana, on the other hand, elites are freer to adopt developmental and industrial policies as their hegemony is well established”.
Khama is also praised for making wise decisions with regard to allowing foreign investors into the diamond mining industry, which established good international ties which is good for economic growth (Beaulier 2003: p234). He also made brave economic decisions of liberalising trade and lower income taxes. The low income taxes made political sense for Khama’s government and it also meant that people are less likely to evade paying taxes and less corruption as there is not a large amount of money to fight over (Beaulier 2003?????). As well as modernising Botswana economically, Khama kept a lot of the pre-colonial institutions. On the whole I believe this to be a wise choice as decisions to preserve such institutions as the Kgotlas kept part of Botswana’s culture and allowed the decisions of the new government to be openly assessed and criticized by the public and as Iimi points out it is important that citizens can “discipline those in authority for resource extraction” (Iimi 2006a:p10)
State capacity is also an important factor in avoidance of the resource curse. Englebert (2000:p8) defines state capacity as the capacity “to design and implement policies, make credible commitments, run an efficient bureaucracy and provide constraints to opportunistic behaviour” If state capacity is not large then the risk of over exploitation of the resource is likely (Iimi 2006a). It appears that Botswana has been highly effective in this respect as compared to other African nations it has a better score on the corruption indexes…
However, it is evident that institution are not the sole factor in the ability of Botswana to avoid the resource curse and prosper as before independence there was good pre-colonial institutions yet Botswana was the third poorest country in the world before independence (Beaulier 2003:p236). The view is also rather pessimistic because if bad growth is due to history of nations and their colonisation then Africa is doomed as they are unable to change their past.
As discussed in the previous chapter resource abundance can cause corruption among government officials. However Botswana has taken steps to avoid corruption. Such measures include the creation of the Directorate of Corruption and Economic Crime which is a department that investigates reports of possible corruption. It is special because it can report cases directly to the president of Botswana.
The lack of corruption comes as a surprise considering that at the beginning of the flow of diamond revenues Botswana was still an exceedingly poor African nation and even now “inequality has remained remarkable high” (Acemoglu et al 2001). One could assume, also, that the sudden nature of the flows would have made it easier for people to rent-seek as the flow might not have been well managed due to its vastness. On the other hand, although there is no doubt that diamond revenue is a large flow the government seem to have been able to manage it fairly well (Samatar 1999, Leith 2005). As the revenues of diamonds have a time lag from the onset of mining until the government receives the finance (REF) it could be argued that Botswana’s diamond revenue was not so sudden, which gave the government time to plan management strategies.
Botswana used the IMF and World Bank in an advisory capacity (Beaulier 2003:p235) to help manage the flows and it appears that the good leadership and the creation of a credible government, which forges trust between the citizens and government, are to thank for that fact that “corruption in the public sector is not a big problem” (Iimi 2006a:p11)
In the Transparency International’s 2009 perceptions report Botswana scored 5.6 out of a possible 10 ranking is 37th in the world. The second most transparent country in the African continent is South Africa with a score of 4.7.(Transparency International Corruption Index 2009) Thus, the resource curse theory predicting that high resource abundance tends to lead to more corruption appears to not be a strong argument for the case of Botswana. However that is not to say that all is well in Botswana. There are still worries over elite corruption and non-accountability issues, especially during the 1990’s (Good 2005:p33). Transparency is a good indicator of the level of corruption, as is accountability. If people are held accountable for actions and decisions taken by a government (or any person or institution in power) then there is likely to less corruption. The government has made appropriate steps to being an accountable government. For example, “The constitution also makes the attorney general independent of the government and politicians” (Iimi 2006a:p11) and as previously said the Kgotla institution allows even local areas of government to be criticised and accountable.
“Of all sub-Saharan African nations, Botswana has been the only one free from international and political turmoil since independence” (Beaulier 2003:p234). This is quite surprising considering that most other diamond extracting African nations have entered into long and bloody civil conflict, e.g. Angola and Sierra Leone. So how did Botswana avoid conflict?
- Firstly, “indigenous conditions in Bechuanaland (modern-day Botswana) exhibited a fair amount of cultural and ethnic homogeneity” (Acemoglu et al 2003:p228), and as discussed in the previous chapter ethnically fragmented societies are more likely to fall into civil war.
Although Botswana is fairly homogeneous in comparison to other countries, there are a variety of different tribes living in the borders of Botswana. The main ethnic groups are “Tswana (or Setswana) 79%, Kalanga 11%, Basarwa 3%, other, including Kgalagadi and white 7%” (CIA Factbook: Botswana) As we can see, Botswana is defined as relatively homogenous due to the fact that nearly 80% of the population are of Tswana origin, yet there are a lot of different ethnic tribes. So we must not assume that as Botswana is relatively homogenous there are not conflicts of interest among different ethnicities.
On the other hand, the fact that there is clear ethnic dominance by the Tswana in Botswana as they ” became an institutionalised element in the constitution and in the political system through a Tribal Land Act, Tribal Territories Act, Chieftainship Act, and a House of Chiefs composed entirely of Tswana ex-officio members” (Good 2005:p32)
But despite the ethnic dominance, there have not been large civil wars or conflict within Botswana. Although there have been incidences whereby members of other tribes are protesting and fighting for a more equal society and stronger rights for the smaller tribes. (Good 2005)
Perhaps the biggest, or at least most widely known, conflict within Botswana has been centred around the struggle of the San (also known as Basarwa) minority against the government of Botswana. This shall be discussed in CHAPTER XXX
As previously discussed, religion can also be a factor in dividing a country in conflict. In the 2001 Census just over 70% of citizens identified themselves as Christian, around 20% were Atheist, 6% were Badimo (native/anscestory based), and 2% identified themselves with other religions (CIA World fact book: Botswana). Like, ethnicity Botswana appears to be relatively religiously homogenous. In recent history there has been no major conflict between religious divisions (International Religious Freedom Report 2007)
Another reason that resource abundant economies often have conflict is that “greedy rebels could seek profitable looting opportunities” (Brunschweiler et al 2008b). However, before the discovery of diamonds there were no obvious rebel groups (REF). Also, the revenues have been so large (accounting for 40% of GDP Iimi 2006a) that nobody wanted to upset the balance at the risk of becoming the loser in the battle, and therefore coming out worse than they were before.
Botswana’s growing development and non-interventionist stance into foreign affairs have gained approval from Western nations who therefore offered protection to Botswana should conflict arise between the country and other neighbouring nations. This has also attracted some FDI into the country which can benefit the economy. (Beaulier 2003:p235)
- An interesting decision taken by Khama after independence was to make all sub-soil mineral rights that of the government. This is intriguing as a lot of the diamonds in the soil belonging to his own tribe. (Acemoglu et al 2001) XXXXX
Some interesting evidence to show that Botswana has been a relatively peaceful country since independence is the role of the military in Botswana. Until 1977 the country did not have an army (http://www.botswanaun.org/faq.htm). We can only presume that the management of diamond revenues and the nature of institutions and decisions of post-independence leaders discussed previously in this paper prevented the struggle for power over the diamonds.
In the previous section it was discussed that school enrolment is often small when resource abundance is high. This appears to not be the case in Botswana as we can see from the graph below…XXXX (REF)
Botswana chose to invest in education because the government of Botswana was very aware of the importance of increasing human capital. The Sustainable Budget Index (SBI) and the Development Fund were created in 1972 (Iimi 2006a:p10) which allows diamond revenues only to be spent on development expenditure and recurrent spending on education and health. Iimi (2006a:p10) points out that although this rule is mostly followed, when it hasn’t been there have been large fiscal deficits. The government’s commitment to finance essential services and specially healthcare and education has benefitted the majority of people in Botswana, however now Botswana has started funding these public services heavily they have made a commitment that will be hard to reverse should the diamond revenues deplete.
However, not all is well on the education front in Botswana. As previously observed, diamond mining is capital intensive, and therefore not much high skilled labour is required. It is not surprising therefore that Botswana suffers from a high unemployment rate, The UN estimate was 17.6% of the labour force were unemployed in 2006.(http://data.un.org/CountryProfile.aspx?crName=Botswana) However, it should be noted that it is likely Botswana has a large informal labour force which absorbs and therefore lowers this high unemployment rate (Perrings 1996). From this it appears that the educated population of Botswana is not reaching their full potential due to lack of high skilled jobs.
However, the increased spending on education cannot be seen as a negative issue in any sense, as with a skilled labour force Botswana and hopefully achieve its aim of diversifying the economy more easily than it could have done without such skills. Having an educated population also encourages investment from abroad into Botswana. (REF)
BOX- Brief comparison between Botswana and Sierra Leone
Graph showing annual gdp growth
Amount of diamonds mined in each country. % of GDP and actual amount
Sierra Leone has clearly taken a different path from Botswana as in past decades it has been unsuccessful in using diamond mining to transform the economy for the better.
Sierra Leone is probably most famous for it’s long civil war that has plagued the country throughout the 1990’s. It is often argued that the most likely cause of the war was control of the diamond mines. The war began in 1991 when the Revolution United Front (RUF) attacked Eastern regions of Sierra Leone and gained control of diamond mines in an area called Kono. The war was marked with maiming (in an attempt to discourage people from voting) and killings. Over XXX were killed, XXX were maimed and XXX were displaced and became refugees. The civil war officially ended in 2002
As we can see from the table above, even though the war officially ended in 2002, in 2007 Sierra Leone is still marked as 3rd worst country on the HDI. Whilst Botswana has used the diamonds to create a GDP per capita of $13,604 Sierra Leone is a twentieth of that figure.
Botswana also has a high adult literacy rate in comparison to the rest of Africa (REF) due to the determination of the Botswana government on spending in education. Sierra Leone, on the other hand, has an adult literacy rate below 40%.
With regards to mining that occurs in both countries, both are at least partially operated at the top end by DeBeers.
The difference in performance between Botswana and Sierra Leone could be due to high ethnic fragmentation in Sierra Leone. Two of the main ethnicities are Mende and Temne, each making up 30% (CIA WORLD FACT BOOK: Sierra Leone). As discussed in Chapter XX ethnic fractionalisation is linked with the resource curse due to greater risk of conflict and corruption. Although in Sierra Leone’s case ethnic tension was not the main catalyst during the civil war nor a major factor in the actions of the RUF (REF).
Another cause of Sierra Leone’s inability to use diamond revenues to benefit the country could be the decisions of leaders post-independence. As previous discussed Botswana benefitted from the forward-thinking post-independence leaders such as Khama and Masire. But Sierra Leone did not benefit from the leadership of Siaka Stevens who was known for his authoritarian ruling style and execution of his opposition (REF).
Perhaps due to the two interlinking factors of bad leadership and civil war, Sierra Leone has not had the opportunity to build infrastructure like Botswana has. (REF). This has also meant that good economic policies were not adopted in Sierra Leone but were adopted in Botswana.
However, the future of both countries is under the magnifying glass by academics recently. In Botswana’s case we are looking at how the economy can continue to grow by becoming less diamond dependent. In the case of Sierra Leone, it concerns whether, after years of hardship and devastation caused by the diamond industry, whether the same diamond industry can be used to rebuild Sierra Leone. It is hoped that Sierra Leone can learn from the Botswana experience on how to manage resources efficiently, and hopefully avoid some of the traps that Botswana has failed to avoid such as diamond dependency.
Chapter 5: Problems the Diamonds have Caused Botswana
However, although Botswana has avoided a lot of the side-effects of the resource curse, all is not perfect. Botswana appears to be heavily dependent on the diamond industry with around 40% of GDP coming from mining (Iimi 2006a:p3). Resource dependency is a problem as resources can be exhausted or world prices for the commodity can drop and thus resulting in a dramatic drop in government revenue.
This occurred in the 1980’s and as a result Debswana had to stockpile diamonds (Hill and Knight 1999 p 307-310). More recently, during the economic down turn, “Debswana decided to shut all of its diamond mines in December 2008” (Pegg 2009:p2) which then reopened in April 2009.
When this occurs the government may find it difficult to finance its budget and recurrent spending. This is why resource revenues should be a safety net (Brunschweiler and Bulte 2008b) as opposed to the main source of funding for a government. However, this advice is hard to follow in developing countries like Botswana because the pressure to spend money when it is available to high due to high poverty levels. (Jefferis 1998: p311)
The causes of resource dependency appear to be poor foresight by the governments concerned as Brunnschweiler (et al 2008b) cites “poor economic development policies- leading an economy to become dependent on its primary exports- dampens growth”. Based on this statement it could be interpreted that it is resource dependency and not resource abundance that causes the ‘curse’.
Diversifying the economy away from diamond dependency appears to be, in theory, a rather effective cure for diamond dependency. It is essential in the case of Botswana as its diamond mines are expected to be exhausted in around “50-100 years of supplies at current production” (Jefferis 1998: p315). However, there is a lot of academic consensus that appears to say Botswana has been unsuccessful in diversifying its economy (Pegg 2009 and Confederation of Commerce, Industry and Manpower, Mmegi, 29 August 2003).
This is not to say Botswana hasn’t tried. It has made at least a small effort when it attracted investment in the form of a car assembly plant which was built in the country’s capital city Gaborone in 1993 (Good 2005). Some reasons it has been hard for a large manufacturing sector to develop in Botswana has been because there is a small domestic market and the South Africa, who Botswana heavily relies upon for imports, has a very protectionist attitude towards industry (Good 2003b:p6)
The car manufacturing industry in Gaborone has had many problems which Mmegi (2003) indicates are caused by the lack of FDI in Botswana, harsh competition from South Africa and a lack of effort in promoting industrialization by the government of Botswana. This could be true of all attempts at diversifying the economy into greater industrialization.
90% of foreign direct investment in Botswana has been directed towards the mining industry (Clover 2003) and although Botswana has one of the best credit ratings in Africa (US Department of State 2009) it has not attracted much FDI for other industries (Pegg 2009:p3). In fact FDI for Botswana has been falling over recent years “FDI was $100 million in 1997 but only $57 million by 2001” (African Development Bank:p.78.)
As Botswana has a small domestic market, it is natural that Botswana would export any products of manufacturing. Botswana has enjoyed a very close relationship with South Africa as it is part of the South African Customs Union (SACU). Although this has been beneficial to Botswana, South Africa is very protective of its industry and has had grievances with Botswana trying to export its products to the South African market in the past (Good 2003b:p6)
So how can Botswana become less diamond dependent? One suggestion is to invest more in the agricultural sector. As the diamond industry has caused some shrinkage in the agricultural sector, investing in it could increase its output once again. It is especially important in the case of Botswana as a large portion of the population is employed in agriculture, despite it only contributing a small amount to GDP (Pegg 2009). This would also lead to better income distribution as it is generally the rural who are least advantaged in many economies, including Botswana.
Human Rights Issues: San Bushmen
The San Bushmen are an indigenous group of peoples who inhabit Southern Africa, including Namibia, South Africa and Botswana. The number of San (also known as the Basarwa and Khoi) inhabiting Botswana are estimated to be around 50,000 (BBC 2002).
The San who occupy an area of Botswana known as the Central Kalahari Game Reserve (CKGR) have attracted wide media attention to due their relocation by the government outside of the KGCR where they ancestors have lived for over 30,000 years (BBC 2002)
The area was created to protect the wildlife that exists in that area and the San were allowed to stay by the British as their hunter-gatherer existence worked in harmony with the purpose of the KGCR.
Diamond deposits were discovered in various areas within the KGCR in the 1980’s and in 1996 a formal evaluation of the mine was completed (Survival International 2003).
Not long after that in 1997, forced removal of the San from the game reserve started. Although the San have no legal ownership of the land (due to the Botswana government refusing to acknowledge the San’s rights) the forced removal of San people is illegal and has attracted much attention from NGO’s such as Survivor International.
Abuses of human rights, such as the right to water have been violated by the government who destroyed all the San’s boreholes and removed all water tanks. (REF). It has also been reported that threats were made against the San and huts were destroyed in an attempt to remove the San. (REF)
The government’s official reasons for relocating the San are that the San are now turning towards agricultural practices to survive as their nomadic ways of hunting and gathering are becoming obsolete in modern times (ref) and such activities are not in harmony with the aim of wildlife preservation. It has also been said that the relocation of the San is for their own good as they are able to assimilate into modern culture and receive the benefits of healthcare, schooling and jobs if relocated (Good 2003a). The attempted forced assimilation of the Bushmen into modern Batswana life depletes their culture.
Of course, many have suspected the reasons for the relocation programs are so that the government and Debswana can exploit the diamonds that are beneath the soil. This certainly appears to be a factor in the removal as diamond explorations increased after the evictions had occurred. (REF)
Although no diamond mining has occurred in the CKGR, the nature of the diamond trade encourages stock piling of diamonds in order to keep the world price high (REF). It makes sense therefore that even if Debswana is not looking to exploit the mine at present, perhaps due to the economic crisis, it is likely to do so in the future.
To fight the injustice the San experienced they decided to take the Botswana government to court to allow them to move back onto the CKGR (Sesana and Others v Attorney General (52/2002)  BWHC 1 (13 December 2006)). The San were successful and many of the San returned home. However, some of the San are still being refused entry to the CKGR and even those that have returned do not have access to water and the government are still not allowing them access to the water holes. (REF).
Evidently, the struggle of the San has cast doubt on Botswana’s democracy and if it is true that the reason the San were evicted was due to diamond mining then it could be said that part of the resource curse has affected Botswana’s human rights profile.
The reputation of Botswana has suffered due to this blatant racist attitude which some have called a “slow genocide” (REF) or “ethnic cleansing” as the San are unable to survive outside the CKGR without animals to hunt or without water. The greed of the government and Debswana to make more money by exploiting diamonds appears to have no bounds as they have proven when they have crossed international laws and have no regard to the ancient culture of the San. (REF)
But as a BBC (2003) reports states “A successful land claim by the San might make it more difficult for the government to exploit any mineral finds, although the state owns all mineral deposits in Botswana”