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Notes from Africa 3: Botswana

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Written by Joe Studwell

Image credit:Overview of the Central Business District in Gaborone, the capital city of Botswana. Image license:Justice Hubane/Unsplash

As one of only two African countries (the other being Mauritius) that has transformed itself from poverty to upper middle-income status in just a generation following independence, Botswana offers important lessons for other developing countries.

Seretse Khama’s journey to power

In colonial times, when Botswana was surrounded by white minority-ruled settler states, the main economic activity in the country was cattle herding.

The heir to the throne of the largest ‘tribal’ grouping in Botswana was Seretse Khama. In 1951 he was exiled because of his marriage to a white British woman, which was deemed unbearably provocative to the apartheid South African government. But on his return five years later, Khama worked closely with the last British Commissioner to develop national institutions of government.

“A Legislative Council was initially split half and half between African and European members, with Africans elected by a show of hands which ensured that cattle-owning aristocrats dominated the returns.”
“When politicised Batswana – as the people of Botswana are known – miners working in South Africa formed a radical political party, Khama responded by forming an establishment party led by the African membership of the Legislative Council. The Botswana Democratic Party (BDP) went on to dominate Botswana’s politics until the present day.”

Khama formed alliances with anyone committed to a national, if conservative, political programme. The most important was with Quett Masire, a successful agricultural entrepreneur. Khama’s backing by the British allowed his team to operate like a full cabinet in the final years of colonial rule.

As Joe writes, during his leadership Khama stood up firmly for the principle of racial equality:

“In 1962 he moved a motion in the Legislative Council to establish a select committee on racial discrimination. The report the committee published was the basis for ending the racial segregation that was unofficial but ubiquitous… Khama forced the political leaders of the white minority to come to terms with the reality of African majority rule and also convinced the chiefs of the eight ‘tribal’ groups to surrender key powers to a new national government.”

Khama, his government and the BDP also took various measures to build up their constituency of economic support – particularly among cattle owners. For example, a National Development Bank was established in 1963 which provided them credit to sink boreholes, while the nationalisation of Botswana’s abattoir on the South African border ensured profit from meat sales could be returned to the big cattle owners.

Indeed, during the 1965 elections the BDP campaigned aggressively – and successfully – in rural areas, winning 28 of 31 seats in a new Legislative Assembly. Seretse Khama became Prime Minister and Botswana became independent in September 1966.

A reputation for reliability

Seretse Khama’s approach to both politics and economic development was pragmatic and conservative. The BDP leadership also made a point of leading by example:

“The key examples set were racial integration and frugality. Ministers made a point of joining new, racially-integrated sports and social clubs that were established in the capital, Gaborone. With respect to frugality, Seretse Khama was the only government minister to fly first class. Vice President Masire and other ministers travelled in economy.”

The party assembled a Ministry of Finance and Development Planning (MFDP), led by Masire. This established economic development objectives in rolling five year plans which were passed into law. Botswana was to acquire a formidable reputation for reliable aid planning and spending:

“Botswana in 1966 had the commitment to collective action for national development, the pragmatic, ‘whatever works’ approach, and the nascent planning bureaucracy that characterised the most successful East Asian developmental states. Already in the early 1970s, only Congo and Gabon received more aid per capita in Africa.”

Golden profits

When mineral discoveries were made by foreign companies in Botswana, the government was well equipped to manage their exploitation. It ensured all investment risk for mining was held by the miners and financing agencies that supported them.

“The Botswanan approach was vindicated when copper and nickel prices fell and the mine never made money. However, the mine did fund the build-out of Botswana’s power and water utilities, and road infrastructure.”

In 1971, the Orapa diamond mine, founded by South Africa’s de Beers, opened and changed Botswana’s future. In its first full year, it accounted for 10% of government revenues. When de Beers’ company sought to expand its production and open two more diamond-bearing pipes nearby, the government successfully renegotiated their contract which ultimately gave Botswana 65-70% of profits. And in 1976, De Beers discovered another kimberlite pipe at Jwaneng. This became the most profitable diamond mine in the world.

"Once the three major sites were all functioning, from 1982, Botswana accounted for around a quarter of global diamond output and this share would rise further.”

Botswana’s planning unit produced other important results with respect to the country’s foreign trade regime. After independence, economist Peter Landell-Mills renegotiated the terms of Botswana’s membership of the Southern Africa Customs Union (SACU), which boosted customs revenues.

And in 1976, Harvard-trained South African Quill Hermans led the launch of a domestic Botswanan currency, the Pula. This enabled foreign exchange reserves generated by mining exports to be managed by a new central Bank of Botswana.

As Joe summarises:

“In the first two decades after independence, Botswana’s economy grew at more than 13% a year as mining came to account for half of GDP. The share of mining receipts in government income rose even faster, to a quarter of revenues in the mid-1970s, and more than half in the mid-1980s. At the same time, Botswana’s reputation for planning and project delivery maintained high levels of foreign aid.”
“In the second half of the 1970s, aid still constituted one quarter of Botswana’s total government expenditures. From being one of the poorest countries in the world, the question for Botswana became how to employ surpluses.”

Absence of policy vision

In deploying these surpluses, Botswana’s government was always disciplined, but lacked any vision of enabling wider structural change in society.

“Like the national leader, Seretse Khama, the administration was fundamentally reactive, dealing with opportunities and challenges effectively, but with no overarching, proactive strategy beyond the long-established support for big cattle.”

MFDP economists invested effectively in education, healthcare and basic infrastructure, but this wasn’t enough to prevent rural poverty:

“There was a continuation of the private borehole drilling that effectively privatised communal land to large herd owners who could afford the wells… An inclusive agriculture policy would have prioritised small-scale cattle farming and involved local communities in managing communal land. However, such a strategy was never considered. In the 1990s, an estimated 5% of the population owned half the national herd.”
“It was a large-scale but low-efficiency cattle economy and was accompanied by a steady increase in the proportion of rural families reporting they owned no cattle – from 28% in 1980 to 46% in 1999.”

The government tried to address rural poverty by increasing subsidies to rainfed arable agriculture, but the precariousness of this form of farming across Botswana rendered the strategy ineffective.

An incoherent manufacturing policy also limited opportunities to boost employment opportunities in this sector.

“This reflected the dominance of orthodox economists in government who knew that a mineral-driven economy needed to diversify but who were ideologically sceptical of the use of subsidies to induce manufacturing expansion.”

The Botswana Development Corporation (BDC) was created in 1970 to drive investment in industrial projects. But it limited its activities to the most basic, low value-added import substitution, such as a brewery, a soap factory and a flour mill. There were no investments in more complex industrial plants.

“Instead of subsidising manufacturing at scale with firms’ competitiveness tested by their capacity to export – the crux of the East Asian model – from 1982 Botswana implemented a programme to provide subsidies to enterprises based on their employment generation.”
“The Financial Assistance Policy (FAP) provided up to 90% of the capital cost of starting a business, and 80% of wages, declining to 20%, over five years. The programme ballooned, and was characterised by increasing abuse, over 20 years. The manufacturing share of the economy remained stuck at 4-5% as FAP projects closed down when grants ended.”

The government did deliver some manufacturing success in the cutting and polishing of diamonds, via its periodic renegotiations with De Beers. However, inequality across the country deepened.

“The orthodox economic prescription in Botswana left elevated levels of poverty and inequality despite rapid and sustained economic growth. The sectoral economic focuses of East Asian developmental states such as Japan, China or Vietnam on smallholder agriculture and manufacturing, which brought very broad-based development, were absent.”
“Instead, in a Botswana whose population today is 2.3 million, there are only 340,000 formal jobs. Of these, the private sector accounts for 190,000, of which manufacturing is less than 40,000. The other 150,000 public sector jobs are in central and local government.”

The failure to create more private sector jobs has left large numbers of Batswana dependent on welfare schemes.

Contrasting Botswana to the developmental states of East Africa, Swedish academic Ellen Hillbom describes the country as a ‘gatekeeping state’, capturing how it has prioritised stability over much-needed innovation:

“Stability has lacked original thinking about how to change society” (Hillbom)