diamonds or development - botswanas 40 years of success

8/2/2019 diamonds or development - botswanas 40 years of success

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Diamonds or development ? A structural assessment of

Botswanas forty years of success

ELLEN H ILLBOM *

Department of Economic History, Lund University, P.O. Box 7083,

S-220 07 Lund, SwedenEmail: [email protected]

A B S T R A C T

Due to its four decades of high long-term economic growth and democraticsystem, Botswana has been depicted as an exceptional success story in a regionfull of economic and political failures. In this article, a structural analysis isapplied, and it is argued that Botswanas success should be understood as one of pre-modern growth without development. It is claimed that although the countrymay be a growth miracle, it has not yet experienced modern economic growth,characterised by structural change in patterns of production as well as in socialand political institutions. Such analysis also offers an explanation for the dualityof Botswanas economy and society, since pre-modern growth, as opposed todevelopment, allows for signicant poverty rates and extremely unequal resourceand income distribution to prevail in the midst of plenty.

I N T R O D U C T I O N

At Independence in 1966, Botswana was a poor, undeveloped and seldomheard of part of the world. Forty years later, it is regarded as a growthmiracle (Samatar 1999), a sign of hope for sub-Saharan Africa, and as anexemplar of prosperity and success. The country experienced a staggering GDP per capita increase of 13% per annum in the years 198089(Mpabanga 1997), and a long-run growth over the last four decades thateven surpasses the performance of the Pacic Asian tigers (Leith 2005: 4,

* The research for this article was conducted within the research project The Role of Equity inDevelopment, funded by the Swedish International Development Cooperation Agency, Department

J. of Modern African Studies , 46, 2 (2008), pp. 191214. f 2008 Cambridge University Pressdoi:10.1017/S0022278X08003194 Printed in the United Kingdom


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Table 1.1). Simultaneously, the government has managed to establishone of the longest running multiparty democracies on the continent.The question is frequently posed how a country that used to be among the poorest, situated in the most underdeveloped and conict-riddencontinent in the world, could achieve outstanding growth paired withpolitical stability. The explanation for the success story is found mainly inlimited colonial inuence, good political institutions, wise leaders andprudent economic policy (see e.g. Acemoglu et al . 2003; Beaulier &Subrick 2006; Harvey & Lewis 1990; Iimi 2006; Leith 2005; Mpabanga1997; Owusu & Samatar 1997; Samatar 1999).

In this article Botswanas economic performance is, however, analysednot from the viewpoint of stability and growth, but from that of structuralchange and development. The position is taken that while commendableadvances have been achieved during the last four decades, these need tobe complemented with technological innovations, signicant productivityincrease, change in economic and political structures, a signicant rise inliving standards for the poor, and a more equal distribution of resources,incomes and opportunities, for there to be long-run sustainable opulencewith substance. It is necessary to distinguish between growth and devel-opment. Botswanas signicant economic and political advances make up

a clear case of growth without development, as long as such change hasnot taken place.

The diamond-led economic growth record of Botswana is truly im-pressive, and the country is presently classied as an upper-middle-incomecountry with an estimated GNI per capita of US$5,900 in 2006 (WorldBank 2008a). Although average GDP growth rates have been levelling off and falling below 4% per annum (World Bank 2008b), no immediateend to further economic expansion is in sight. The most serious socio-

economic threat is the estimated 24% prevalence of HIV/AIDS inthe productive population aged 1549 (World Bank 2008a), resulting in a35-year life expectancy, and infant and under-ve mortality rates at 87 and120 respectively ( ibid .). This gives the country the unique and deplorablecombination of impressive growth with diving social indicators.

As part and parcel of the successful growth, Botswana is also associatedwith political progress. Independence was peaceful, and compared withother African leaders, the Botswana political elite has shown an ability togovern both peacefully and prudently (see e.g. Acemoglu et al . 2003;Beaulier & Subrick 2006; Hill 1991; Leith 2005). The country has a highregulatory quality, and is considered by many not only to be the least

192 E L L E N H I L L B O M


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contested as increasing mismanagement and corruption on the part of the power elite has been documented (Makgala 2006).

In the midst of this peaceful growth miracle, there thus exist seriousdeciencies. Apart from a degree of elite capture, these include concernsover high and unchanging inequalities, poor and neglected rural areas, highunemployment rates, failure in limiting the AIDS epidemic, discriminationagainst minority groups such as the San and a weak civil society (see e.g. Allen & Heald 2004; Good 1993, 1994; Gulbrandsen 1996; Heald 2006;Lekoko & van der Merwe 2006; Makgala 2006; Nthomang 2004; Phaladze& Tlou 2006; Wikan 2004). Dual development and contradictory in-dicators are typical of a country experiencing pre-modern growth withoutstructural change and development. A holistic structural analysis thatrecognises Botswanas socio-economic institutional structure as partlypre-modern underscores the ambiguity in the growth process, and isnecessary for drawing up strategies for turning growth into development.

G R O W T H O R D E V E L O P M E N T

Kuznets (1973) argued that in our time the end goal for any society is toreach modern economic growth (MEG), thereby leaving the pre-modern

growth process behind. This modernisation, which is the equivalentof development, is characterised by technological advances, high ratesof growth, a rise in productivity, and structural transformation of theeconomy, society and ideology. Depending on its causes and character-istics, growth may be more or less likely to promote such processes of structural change, and societies can experience growth while staying pre-modern. Botswana is an example of a small country possessing ex-ceptionally valuable resources, allowing the state to provide its population

with increasing rents. Such types are not representative in Kuznets orig-inal model of MEG, where they are treated as atypical cases. Building on Kuznets, using comparative history and comparative economic devel-opment, Adelman and Morris (1997: 833) elaborate on the modernisationargument, taking the position that all processes of economic developmentare multifaceted and non-linear. Recognising variations in possible pathsto modernisation and development does not, however, contradict stipu-lating a uniform end goal. In their categorisation, Botswana falls into atypology of agricultural, primary-export oriented, sharply dualistic andland-abundant countries. Within this group, the characteristics of existing natural resource endowments and degrees of government autonomy

D I A M O N D S O R D E V E L O P M E N T I N B O T S W A N A 193


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A theoretical approach to the potential development process of thiscategory of economies is offered by a modied Lewis model. Lewis (1954,1979) stipulates a closed economy, where population is large relative tocapital and natural resources and, consequently, there is an unlimitedsupply of labour. As this labour leaves the subsistence sector where mar-ginal productivity is negligible, zero or even negative, and moves into thecapitalist sector with signicantly higher productivity, structural changeand economic modernisation are realised. The industrialisation processis at the heart of the capitalist sector, but this also includes capitalist agri-culture, and Lewis was highly concerned with raising agricultural pro-ductivity in order to prevent the creation of a dual economy. The originalLewis model must be restated for the analysis of economies of theBotswana type to an open-economy model, where export incomes fromprimary products are invested to achieve industrialisation and agriculturaltransformation (Adelman & Morris 1997: 838). Such substitution for poorcapital accumulation in other sectors, specically agriculture, is the pri-mary opportunity for catching up offered to natural resource-dependentdeveloping countries (Gerschenkron 1962).

MEG marks a distinct economic epoch, and is separated from the pre-modern structure by six characteristics: (1) high rates of per capita and

population growth; (2) high rate of rise in productivity; (3) high rate of structural transformation of the economy; (4) rapid change in social andideological structures; (5) participation in a globalised economy; and (6) asignicant level of modern technology. At the same time as MEG rep-resents a new structure, it also comprises the continuation of old trends,albeit in an accelerated form, and this makes the break between the pre-modern and the modern difficult to identify and analyse (Kuznets 1973:2489). The conventional Botswana success story, resting on signicant

growth rates due to high earnings from diamond exports, corresponds toonly two of the above stated characteristics. However, the structuralanalysis provided in this article is concerned for all of the above presentedcharacteristics of MEG, the presence of which would signify a break withthe pre-modern growth process.

Technological advance, productivity increase and structural changein patterns of production raise the income levels, while the distributionof resources and incomes via a modernised institutional structure leadsto widespread improvements in human welfare. It is in the nature of development that all segments of society signicantly benet from economicgains. With such a demanding denition of development, there is only a



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that economic development of developing countries is possible (Adelman2003: 1718). The growth performance and improvements in infra-structure and human capital that are characteristics of Botswanas successare signicant, but they depend on export earnings from primary pro-duction, and the country has not reached development as dened above.The second issue to be investigated is then how pre-conditions for atransformation can be created, and whether there are any implicationsfrom the Botswana case for other natural resource-abundant countriesstriving for development.

There is a clear connection between theories on MEG on the one hand,and development on the other. Although Kuznets only used the termdevelopment explicitly in the sense of self-sustained growth, together withstructural change in production and technological advance, the redistri-bution of resources is implicit in the model. Kuznets (1955) hypothesisedthat societies prior to MEG are characterised by fairly equally distributedlow levels of income and a high incidence of poverty. During the processof structural change, inequality temporarily increases, but in the moderneconomy the higher levels of income will be distributed to all levels of society, leading to signicantly improved living conditions. Equity, denedas equal opportunities for all members of society and an avoidance

of deprivation in outcomes (World Bank 2006: xi), is both a means of reaching development and the goal of development itself. In the caseof Botswana, the point of departure involved high poverty rates, combinedwith high degrees of inequality and growth. Adelman and Morris (1997)claim that the individual starting point is decisive for the developmentprocess, and for Botswana a conscious strategy of fairness, improvementsof living standards and inclusion would then be imperative for reaching equity in development.

E C O N O M I C S T R U C T U R A L C H A N G E

Hirschman (1958) argued that in a small country with an economy domi-nated by a valuable natural resource, growth usually has few linkages toother aspects of the economy and society, unless there is active govern-ment involvement to substitute for stagnating sectors. Technologicaladvance and innovation need to be paired with a exible and encouraging institutional structure, in order to produce a signicant increase inproductivity. The general technological level of industry in Botswana has,however, stayed low, and productivity has not experienced any signicant



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input of capital and skilled and unskilled labour, and less than 10% of thegrowth in output in the 1980s and 1990s was due to increases in pro-ductivity (Leith 1997a: 2930). Unfortunately, mining employs only 4% of the labour force, is not complemented by other forms of industry, and hasnot encouraged or contributed to technological advance, via either im-ported technology or domestic innovations (Gaolathe 1997: 41213;Mpabanga 1997: 373; RoB 2004a: 12, Fig. 2.4). It mainly has spin-off effects on the public sector via government employment (Good 1993) andspending. The service sector has at present expanded to 45% of GDP(World Bank 2008a), becoming the largest sector as increased incomesallow for increased demand from government and the public for certainservices and goods. Most consumption goods are imported from theSouthern African Customs Union (SACU) (RoB 2003: 114), which lowersmarket incentives for domestic producers.

In 1968 agriculture dominated the economy, representing over 40% of GDP, only to decline to less than 2% in 2006; it continues to hold a verymodest position. Mining instead expanded from 8 % of GDP in 1974/75 to53% in 1988/89, only to shrink again to roughly 35% in 2002 (Leith1997a: 24; 2005: 5, Table 1.1; Siwawa-Ndai 1997: 343, Table 2; WorldBank 2008a). These changes represent, however, a shift in balance in the

economy, rather than a rise of new sectors, export goods or modes of production. The industrial sector has grown signicantly in relative terms,but this is mainly due to the expansion of the mining sector, whilemanufacturing persists at roughly 4% of GDP, with gures falling overthe last two decades (Mpabanga 1997: 371; RoB 2003: 28, Table 3.1;Siwawa-Ndai 1997: 347). Botswanas contemporary economy is thus notsubstantially more diversied than was the case at Independence (Leith2005: 100; Siwawa-Ndai 1997). The governments efforts to diversify have

failed, and left the economy vulnerable in the long term.In 1966, government policy established that the role of the statewould be one of providing infrastructure and education, while it was up tothe private sector to develop manufacturing. The Botswana MeatCommission (BMC) abattoir completely dominated the manufacturing sector at Independence, accounting for over 90% of output and employ-ment. Starting from the mid-1970s there has, however, been an intra-sectoral diversication and signicant overall growth in value added, butnot in relative terms in percentage of GDP; much of the growth can beattributed to the very low starting point (Harvey & Lewis 1990: 15969;Owusu & Samatar 1997: 275). The government did appreciate the need to



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Unfortunately these became subject to increasing abuse and subsequentlyfailed (Leith 2005: 99100). When it came to expanding beyond thetraditional and well-established sectors, Botswana exposed itself asresembling other corrupt African countries from which it is generally

set apart. The inference must be that industry has not experiencedsignicant technological advance or innovation, achieved much increasein productivity or undergone structural change, and therefore cannot beconsidered as part of a transformation to MEG.

Low levels of technology and productivity unfortunately also charac-terise the agricultural sector, which is further restrained by a hostileenvironment (RoB 2003: 17882; Silitshena & McLeod 1998, chs. 910).Only 4% of the countrys area is suitable for agriculture (Parson 1984: 4),

and absolute agricultural production could never be expected to becomehigh in a country that is as climatically challenged as Botswana, withroughly two-thirds of the country comprising the Kalahari Desert. In the1930s, Batswana farmers grew 90% of the countrys cereals consumption,but production decreased and in the 1980s the gure was 50%.Consequently, in 1991 the Botswana government abandoned its previousgoal of self-sufficiency in food production, and instead adopted a policyof food security (Silitshena & McLeod 1998: 889). The country istoday totally dependent on SACU for imports, while elds and animals yield even below the requirements for subsistence, and many householdsdepend on complementary off-farm incomes (Gulbrandsen 1996: 23).

T A B L E 1Shares of GDP by sector

1966 1975/76 1985/86 2000/2001Sector % of GDP % of GDP % of GDP % of GDP

Agriculture 42.7 20.75 5.6 2.6Mining & Quarrying 17 .5 48.9 36.5Manufacturing 5 .7 7.6 3.9 4.1Water and Electricity 0 .6 2.3 2.0 2.4Construction 7 .8 12.8 4.6 5.8Trade, Hotels and Restaurants 9 .0 8.6 6.3 10.3Transport 4 .3 1.1 2.5 3.8Banks, Insurance & Business Services 20 .1 4.7 6.4 10.9General Government 9 .8 14.6 12.8 16.0

Social and Personal Services 2.8 2

.5 4

.0

Source : Adapted from RoB 2003: Table 3.1.



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after Independence. Already in the late 1920s and 1930s, the colonialadministration started borehole drilling schemes, as beef exports wereconceived as the only comparative advantage of the BechuanalandProtectorate (see e.g. Carlsson 2003: 1537; 1 Lawry 1983: 2; Parsons &Crowder 1988; Peters 1994, ch. 3). This assumption turned out to be valid,in the sense that until the present the countrys only signicant agriculturalexport has been beef, and it will continue to be so in the foreseeable future. At Independence, beef represented 85% of Bechuanalands total exportearnings, a gure that had dropped to 2% in 2006 (Colcough & McCarthy1980: 32; Harvey & Lewis 1990: 7882; Leith 1997b: 530; RoB 2007).In 1975 the Botswana government negotiated favourable conditions fromthe Beef and Veal Protocol of the Lome Convention, which guaranteedexports to Europe with high prots due to signicant reductions in tariffs(Harvey & Lewis 1990: 7882; Siwawa-Ndai 1997: 363). The indepen-dence government has continued in the footsteps of its colonial pre-decessors: constructing water sources, subsidising veterinary services,distributing vaccines, building veterinary fences, and setting up the BMCas a monopsony buyer of cattle and exporter of meat (Acemoglu et al .2003: 101; Lawry 1983: 14). The livestock sector presently contributes80% to agricultural GDP, but ranching in Botswana is a low technology

sector, and not much has happened in terms of technological advancesince the introduction of modern boreholes and the establishment of the Lobatse abattoir in 1954. Despite its decreasing relative contributionto the economy and low productivity, the cattle sector is continuouslyexpanding as the numbers of animals increase, although there have beensevere setbacks in drought years. At the same time there is a polarisation incattle ownership, with increasing numbers of small-scale farmers withoutcattle at the one end, and large holders at the other (Gulbrandsen 1996: 3;

Peters 1994: Silitshena & McLeod 1998, ch. 11). The continued striving bythe large cattle-holders to amass more animals can be explained by thehigh social status that is still associated with cattle, and by the export protschannelled to individual cattle holders by the BMC. From a nationaleconomic and environmental sustainability point of view, this expansionof the cattle sector is unwarranted, as natural resources such as water andland are being heavily exploited while returns are modest.

In the general model for MEG, productivity increase in subsistenceagriculture resulting in agricultural transformation should generate capitaland free labour that can move over to industry and other capitalist sectors,thereby becoming a starting point for structural change (see e.g. Lewis



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creating a dual economy with a disadvantaged countryside, it is still im-portant for there to be an agricultural transformation including an adop-tion of new farming methods, which could increase productivity and raisestandards of living. When the agricultural sector is failing to ll its role asthe engine of MEG, other more successful sectors in the case of Botswanathe mining industry could substitute for its shortcomings in forming capital, thereby becoming the engine of development (Gerschenkron 1962).

Botswana has been urbanising quickly for the last four decades, andhas moved from 4% living in urban settlements at Independence(Gulbrandsen 1996: 19) to 58% at present (Leith 2005: 13, Table 1.2; WorldBank 2008b). This could be viewed as a sign of structural change, butalthough urbanisation entails a profound reorganisation of the populationand has implications for various aspects of human development, it is notequivalent to growth in the industrial or capitalist sectors in which highproductivity is found. Lewis original model is often misunderstood, andquoted as an argument for economic development centred on a process of labour moving from agriculture to industry, and urbanisation equalling industrialisation. Both industry and agriculture are part of the capitalistsector, and although the subsistence sector is primarily associated with pre-modern agriculture, it is common in developing countries for subsistence

sectors to expand also in urban areas, the most evident case being informalself-employment. Botswanas prime engine of growth, the diamond sector,is neither located in the urban areas, nor does it have signicant links toother sectors of industry. The urban settlements are instead attracting labour that nds employment within the government administration,service sector, household employment, trade, and so on, some of it in theformal and some in the informal sector. Labour is thus mainly moving fromsubsistence agriculture to non-capitalist urban sectors, and provides yet

another indicator that structural change and MEG are not present.Since the early 1990s, a serious unemployment problem has beenregistered, with 18% unemployment in 2005/06 (RoB 2006: 2), and aslong as the industrial sector is not expanding, the gure will probably notimprove signicantly. With high urban unemployment rates, as in the caseof Botswana, individuals motives for migrating to the urban areas canbe questioned, but also explained in a satisfactory fashion. Urbanisationbecomes rational behaviour at the individual level, as economic modelsshift focus from full employment equilibrium to expected rather thanactual contemporary and future urban wages (Todaro 1969) and relativedeprivation (Stark 1991). Instead of being a sign of modernisation, urban-



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Lipton (1977) points out that the most important class conict in devel-oping countries today is that between the rural poor, and urban groupsexperiencing improvements in living standards and human capital. Thereis an urban bias favouring the larger cities and industry at the expense of the countryside and agriculture, which drives a process creating dualeconomies. It is damaging because it is counter-productive to both anefficiency norm, implying an allocation of resources to maximise long-runoutput, and an equity norm, distributing income so as to maximisewelfare. As long as most of the poor are located in the rural areas, andagricultural production is characterised by low levels of technology andproductivity compared with the urban sector, the highest returns will beon investments made in the rural sector. Urban bias thus slows down bothgrowth and development. In Botswana most agricultural production hasbeen in the private sector, and the government has merely provided aframework of infrastructure, administration, education and utilities. Whilegovernment spending on agriculture has been small compared with that inurban areas (Harvey & Lewis 1990: 2523), private investments have notsucceeded in compensating for the lack of government involvement.

Rapid urbanisation can also be explained by historical migrationpatterns, revealing that the Batswana have a long tradition of moving in

order to farm, to nd pasture, and for wage employment. In the rural areas,each household may have as many as three dwellings in the village, atthe arable elds and by the cattle post and household members movebetween them depending on season and assignments. With the colonial eracame the demand for payment of taxes, and new labour migration patternswere established as the men left in large numbers to nd employment in themines of neighbouring South Africa (Schapera & Comaroff 1991: 24). Thishad severe negative impacts on agricultural production, and caused social

unrest and disrupted family units (Colcough & McCarthy 1980, ch. 7).These patterns of temporary movement within the rural areas and betweenthe rural and urban are still in place. As in the case of urbanisation, how-ever, neither can be associated with labour moving from subsistence tonational capitalist sectors, nor do they promote structural change.

M A N A G I N G N A T U R A L R E S O U R C E S

The economic history of Botswana is to a large extent the story of naturalresource management, generous gifts and limiting scarcity, which thushave an inescapable place in a structural analysis. It is most unlikely that



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sub-soil mineral resources in 1967, thereby gaining control over futurerevenues. Historical circumstances provided a combination of a perfectresource that is valuable, storable and cheap to transport, and perfecttiming, assuring uncontested incomes to the newly established govern-ment. Without diamonds, the country could very well have had a func-tioning institutional structure offering economical and political stability,but it is hard to imagine any other way of achieving comparable consistentgrowth. Parallel with its diamond deposits, the country has severe con-straints to economic expansion. It is landlocked, resulting in high transportcosts, it has no internationally competitive wage advantage, the climate isunfriendly to agricultural expansion and intensication, and there are noother comparatively valuable natural resources.

Until the 1970s, economists in general had a favourable view of abundant natural resources. Many developing countries that becameindependent in the decades after World War II possessed great wealthin primary products, and this was understood as almost a guarantee forfuture growth. The actual outcome, however, was other than expected, asthe following decades saw the economic growth and development of theNewly Industrialising Economies in East Asia, stagnation in Latin America and economic and political failure in sub-Saharan Africa. The

empirical evidence from most resource-abundant countries has for thelast 3040 years included corrupt leaders selling off natural assets andpocketing the prots, individuals and international companies becoming wealthy while governments stayed poor, and nancial policies unable tocontrol exchange rates and ination. Meanwhile, low wages have becomea stronger comparative advantage than resource wealth. In theory,abundant natural resources are still believed to promote growth byallowing for investments in infrastructure and human capital (see e.g.

Sachs & Warner 1999), but from the 1990s onwards there has also been alively debate focusing on negative aspects such as the natural resourcecurse (see e.g. Leite & Weidman 1999; Sachs & Warner 1995), and Dutchdisease (see e.g. Corden & Neary 1982; Hill 1991).

Sachs and Warner (1995) have shown that there is generally a negativecorrelation between natural resource endowments and economic growth.This is a paradox, since incomes from natural resources raises wealth andpurchasing power over imports and, hence, should also raise investmentlevels and growth rates. The explanations given for the failure of manyresource-abundant countries vary, and include higher prevalence of indolence, rent seeking, conict between stakeholders, corruption, and



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world (Iimi 2006: 6), Botswana has managed to avoid both the resourcecurse and Dutch disease, by creating a long-term plan for the extraction of natural resources and good policy for continued growth (Hill 1991; Iimi2006). This achievement makes it a member of a very exclusive group of developing countries, including only a few others such as Mauritius andMalaysia (Sachs & Warner 1995).

The standard explanation for Botswanas successful management of incomes from its diamonds has some compulsory elements. The govern-ment has extracted diamonds wisely and negotiated a 5050% deal withthe South African mining company De Beers, thus ensuring signicantrevenues for the country. As a result, diamonds account for roughly 30%of GDP, 70% of export revenues and 50% of government revenue (RoB2003: 28, Table 3.1, 205, Table 11.1, 206, Table 11.3). By comparison withother African states, Botswanas leaders have mostly been honest, and elitecorruption was rare until the 1990s. The government has shown greatprudence in the management of diamond incomes, keeping expensesconsistent in boom years and building up foreign exchange reserves,thereby being able to compensate for bust years. This strategy, combinedwith proper management of the exchange rate, has also meant that realexchange rate appreciation has been under control, which has been

positive for the export sector. Through scal policy the government hasavoided external debt problems, and has maintained a stable growth rateover time (Hill 1991). There is a general consensus on the shrewdness of government scal policies, both in building international reserves, but alsoin investing in key sectors such as infrastructure, education and healthcare. Government actions have been in line with IMF recommendationsand have certainly assured growth. Much praise is given to the govern-ment for this achievement, but the relevance of the Dutch disease debate

for the structural analysis is questionable. It is agreed that Botswana doesnot suffer from Dutch disease, although all the typical pre-conditions arepresent. The country has a dominating and lucrative tradable naturalresource sector that supports a growing non-tradable service sector, whilethe tradable manufacturing sector is relatively weak. The greater theincome from natural resource exports the higher the demands for the non-tradable sector, and consequently the less capital and labour is availablefor the manufacturing sector (Corden & Neary 1982; Iimi 2006: 5). Whatsets Botswana apart from the typical Dutch disease syndrome is the factthat at Independence Botswana had an insignicant manufacturing sector,which consequently could not be ruined by the allocation of capital and



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government revenues, there is an indirect discrimination against a diver-sication of the economy, there are few incentives for industrialisation andproductivity increase, and consequently the process of structural change ishindered.

Absurd as it may seem, HIV/AIDS may well not lead to economiccollapse in Botswana, because the mining sector may not be too severelyaffected, as it needs a workforce of only 8,000 paid employees (RoB 2004a:24, Table 2.1). Growth could then continue in the midst of human tragedyand social collapse. Of course, although the mining sector may be un-affected, the epidemic makes it even less likely that MEG will appear inthe near future, due to the immense stress on society at large and on theeconomy outside the mining industry.

Long before diamonds were discovered, the Botswana economy wascentred on cattle. Access to land and water resources was thus the key forcreating wealth, guaranteeing future incomes and setting up patronclientrelationships. The Tswana had a unique settlement pattern, with thepopulation concentrated in larger villages surrounded by arable elds,with the grazing ranges situated further away. Natural resources used tobe communally owned, and each household was allocated land and waterresources by the chiefs according to its needs. Individuals were given

private user rights to arable elds and water sources, while cattle weregrazed on communal ranges, and each household privately owned andcontrolled its own production (see e.g. Carlsson 2003: ch. 5; Colough &McCarthy 1980: ch.1; Peters 1994).

Communal ownership of natural resources, combined with private userrights to resource units and private ownership of production, is a propertyrights system common to rural communities in sub-Saharan Africa (seee.g. Berry 1994; Carlsson 2003: ch. 5; Ensminger 1997; Perrings 1992).

While the property rights institutions in rural Botswana have not experi-enced signicant structural change, individuals have struggled with oneanother within the institutional frameworks, conducting negotiations andtaking advantage of positions of power (Carlsson 2003). These powerstruggles have concentrated resources in the hands of the wealthier seg-ments of society, while at the same time upholding a minimal basic needslevel for the poor that is guaranteed by traditional property rights (see e.g.Carlsson 2003; Peters 1994).

In customary Tswana land tenure, resources belonged to the tribe andwere kept in trust by the chief, who was also in charge of land policy. In1968 the implementation of the Tribal Land Act meant that the tribal land



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which were to follow traditional allocation principles (Gulbrandsen 1984:79). In the 1970s, the government became increasingly concerned withthe issue of overgrazing, and in 1975 the Tribal Grazing Land Policywas launched, dividing all land into three categories: communal, privateand wildlife reserves. It was argued that the move of larger herds tofenced-off private farms would reduce the pressure on the communalgrazing range. With these two land tenure reforms, the government took over responsibility for land distribution from the tribal authorities andallocated private land to the largest cattle holders, while not doing much topromote grazing management among smallholders on communal land(Lawry 1983: 1925).

In a dry country such as Botswana, water is a scarce key resource forall economic activities, both agricultural and industrial. In the denselypopulated south-eastern parts of the country, there is likely to be a shortagein water by the year 2020 if demand continues to increase at the presentrate (Silitshena & McLeod 1998: ch. 5). Still, little is being done to promoteconservation and hinder pollution in rural and urban areas, althoughprogressive water fees have been introduced primarily in the urban settle-ments. There may be several reasons for the political unwillingness to bemore forceful in using pricing and command and control measurements in

order to reduce water use. One is a dread of losing political support;another is a principle of securing the poor the rights to free clean water fordrinking purposes. Instead of reducing demand and preventing pollution,the government has relied on increasing supply through various waterdevelopment projects, but it can be questioned whether current policyeither represents a sustainable strategy or promotes a more efficient use of water resources (Carlsson 2003; Rahm et al . 2006).

Traditionally, wealth was measured in cattle and, by controlling cattle

and lending them to kin and other tribe members, chiefs bought politicalloyalty and access to labour resources (Lawry 1983: 3). Access to andincome from cattle are still central to both the urban elite and ruraldwellers. Due to the economic elites interest in investing in cattle, thenational herd has increased to a point threatening both grazing andwater resources. Colcough and McCarthy (1980: 22) estimate that thenational herd grew tenfold from the beginning of the twentieth century,reaching 3 million head by 1978. The numbers then decreased during the 1980s due to droughts, and reached 2 million in the early 1990s(Silitshena & McLeod 1998: 122,, Table 11.1), only to increase again to 3million at present (Rahm et al. 2006: 159). The solution to overgrazing



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political elite are the same, there is modest political will to protectnatural resources and to inict efficiency demands on the cattle sector.The number of animals is increasing and so is production, but pro-ductivity has not been improved to any signicant degree and structuralchange is absent.

I N E Q U A L I T Y A N D D E V E L O P M E N T

Growth is valued not because it further enriches the already well-off, butbecause it gives an opportunity to signicantly and lastingly improvestandards of living for the majority, including the poor. For a country toachieve the characteristics of development, poverty must be alleviated,income levels be considerably improved, and resources and oppor-tunities be distributed by a modern state in order for all segments of society to benet (Adelman 2003: 1718). Traditional unequal distri-bution of resources and incomes, and a dual economy with dis-criminated sectors and groups within society, dene a society as prior toMEG.

The systematic relationship between economic growth and income in-equalities has been discussed theoretically and investigated empirically

ever since Kuznets (1955) presented his inverted U-curve, and there istoday a consensus that no straightforward relation can be established(World Bank 2006: 44, Box 2.6). There is, however, an inseparable link between equity, dened as equal opportunities for all, and avoidance of absolute deprivation ( ibid .: 1819). Equity likewise plays an important rolein promoting development, as it frees people from the poverty trapand strengthens the political institutional structure. By ensuring higheroverall levels of income and the support of a modern state, the rural poor

can afford to turn away from being risk minimisers and instead becomeutility optimisers, contributing to the economy through their humancapital capacities and raised productivity, and bringing considerably in-creased supply and demand to the domestic market (Lipton 1968). Allmembers of society represent assets in human and social capital, and inorder to create sustainable prosperity these resources should be madeuse of to the fullest. Equitable institutions include all individuals in thedevelopment process, offering them equal opportunities by protecting their property rights and giving them equal treatment before the law.Causation, however, runs both ways, and the increased capabilitiesof individuals result in higher demands on a well-functioning modern



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Developing countries with signicant mineral resources and abundantland tend to be less equal in resource distribution than others(Bourguignon & Morrisson 1990: 11278), and Botswana ts this charac-terisation. By international standards, income divides are high inBotswana. They have been so in historical perspective, and have probablyincreased during the decades of exceptional growth. Today Botswana hasone of the highest levels of income inequality in the world, together withsome Latin American and sub-Sahara African nations (Good 1993: 203; Jefferis 1997: 4936). The current national GINI coefficient as assessed byUNDP (2006) is 0.6.

Despite substantial growth, 47% of the population lives below thenational poverty line (UNDP 2006), and there are reports of prevailing and even increasing rural poverty, at least in certain regions (see e.g.Gulbrandsen 1996; Wikan 2004). The fact that the divide between therichest and the poorest groups in society is widening may not in itself be asevere reason for concern. What is disturbing is that the divergence iscombined with high unemployment, continued high poverty rates anddiscrimination against certain groups, specically the San (see e.g. Curry1987; Good 1993). Together, this reects an institutional inequality wheregovernment policies tend to favour elites in various ways, while denying

the majority of the population equal opportunities (Engerman & Sokoloff 2002; World Bank 2006: 1078). Even worse, contemporary inequalitiesappear to be inherent in the socio-economic structure going back inhistory (see e.g. Good 1994: 205; Peters 1994; Wylie 1990), and there is nostructural change.

Unemployment rates are important for equity, since a prominent wayof eradicating poverty is through growth, resulting in formal employmentand increasing real wages (Quibria 2002). Much of the explanation

for the Pacic Asia miracle rests on equal opportunities and distributionof resources. The unemployed in Botswana are primarily youths andindividuals with little or no education, possibly with a higher proportion of women. A fundamental requirement for making demand meet supplyappears to be to increase the level of education, specically universitydegrees, in the workforce (Siphambe 2003).

There has been both a trickle down from the wealthier segments of society, and a political consciousness of the need to ght high povertyrates. As a result, poverty in terms of income levels has improved from59% of individuals being poor in 1985 (Jefferis 1997: 484, Table 2) to 47%in 2005 (UNDP 2006). These gures may stand out in a regional context,



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normative values, and that distribution of resources and incomes aresubject to conscious government policies. Government policy on distri-bution of wealth in Botswana has mainly been the equivalent of a basicneeds system, giving support to the poor via food-for-work programmesthat have been running during droughts since 1965 (Colcough &McCarthy 1980: 133), as well as providing health care and education freeof charge until recently.

During the colonial era, the British spent little in excess of adminis-

trative costs in the Bechuanaland Protectorate. The independencegovernment has, however, spent about 40% of GDP primarily on infra-structure and human capital, a gure that is one of the highest in Africaand comparable with Norway (Acemoglu et al . 2003: 85; Leith 2005: 85,Fig. 3.9). In 1966, there were only 12 kilometres of paved roads (Acemogluet al . 2003: 80), while today this gure is almost 9,000 kilometres. Thereare 85 airports, over a million telephone subscribers out of a population of 1.7 million, 60,000 internet users (CIA 2008), and 95% of the populationhas access to improved water sources (World Bank 2008b). The Britishconsidered education to be a tribal responsibility, and at Independencethere were fewer than two dozen Batswana who had received universityeducation and 100 who had completed secondary school (Acemoglu et al .2003: 803; Colough & McCarthy 1980: 28). Today adult literacy ratesare 81%, and more than 5% of the population has completed tertiaryeducation (World Bank 2008a, 2008b). Contemporary health indicatorsare severely negatively affected by the rampant HIV/AIDS epidemic,which makes them difficult to evaluate. It is, however, relevant to point outthat although they were good they were never exceptional, and that lesshas been spent on health improvement than on education (Leith 2005: 86,

T A B L E 2GINI Coefficients

Region

Disposable Cash Income Disposable Income

1993/94 2002/03 1993/94 2002/03

Cities/Towns 0 .548 0.513 0.539 0.503Urban Villages 0 .552 0.552 0.451 0.523Rural 0 .599 0.622 0.414 0.515National 0 .638 0.626 0.537 0.573

Source : RoB 2004b. Higher numbers indicate greater inequality.



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and 45 out of 1,000 births respectively (Leith 1997a: 23, Fig. 2; 2005: 13,Table 1.2).

Government policy has given better results than can be detected simplyfrom levels of income poverty, as it has improved human capital and thecapabilities of the poor. In a broader based approach the concept of capability poverty can be used, in which case Botswana scores much morefavourably, with 30% suffering from capability poverty in 1996 according to UNDP, as opposed to 46 % being income poor in the same year (Jefferis1997: 4923). The actions of the Botswana government in improving capabilities have thus been commendable, but they have not automaticallygenerated dynamic processes of increasing productivity and are notequivalent to equity. Indeed, the reliance on government welfare pro-grammes has made many rural destitutes passive, and cemented existing structures (see e.g. Nthomang 2004; Wikan 2004).

In the agricultural sector, poverty is a matter more of access to resourcesthan of income levels, and since smallholders are mainly subsistencefarmers, their standards of living are difficult to estimate. A minimal accessto resources is generally guaranteed within the traditional property rightssystems, where key resources such as water and land have a strong publicgoods dimension (Carlsson 2003: 1017). Batswana farmers are vulnerable

and prone to poverty due to limiting climatic and soil conditions andrecurring droughts. This weakness of the agricultural sector has implica-tions for poverty reduction on a national level, as traditional agriculture isonly estimated to be able to support 1520% of the labour force, therebyaugmenting the pressure on other sectors for offering employment (Jefferis1997: 478).

Distribution of wealth is to a high degree associated with distribution of cattle, which has a long history of being very unequal, with the traditional

chiefs and their relatives being the largest cattle holders (Colcough &McCarthy 1980: 22; Lawry 1983: 6). Cattle continue to be amassed bya minority of large holders, while the number of cattleless smallholdersis increasing. In the 1940s only 10% of households had no cattle, whilein 1993/94 that gure was 57%. In 1990 33% of cattle holders hadon average six beasts each, while 35 commercial farms, representing 0 .6%of cattle holders, held above 4,000 head on average, and 19 farmsheld more than 10,000 (Good 1993: 2234; Silitshena & McLeod 1998:127). After Independence, the traditional economic elite moved into thenew state, establishing a strong connection between large cattle holdersand government. In the early years of Independence, two-thirds of the



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There is a well-documented and uncontested history of the economicand political elite being one and the same in Botswana (see e.g. Acemogluet al . 2003; Good 1993; Peters 1994; Wylie 1990). Very few Europeans eversettled in the Bechuanaland Protectorate as they saw little future in eitheragriculture or mining, and only 3% of farm land came under Europeancontrol (Colcough & McCarthy 1980: 7). This marginal colonial inuenceallowed the Tswana political and economical institutional structure to staystrong, and to guarantee a continuity in the social structure of the pre-colonial, colonial, and post-colonial era (Acemoglu et al . 2003; Colcough &McCarthy 1980: ch. 1).

That the political and economic elite are identical is presented by someresearchers as a decisive factor explaining Botswanas economic success(see e.g. Acemoglu et al . 2003: 104). Maintaining the status quo has, how-ever, allowed this elite to protect its own interests, and there is no reason toassume that it would act according to anything other than its own self-interest (Kaufmann & Kraay 2002: 204). The political elite is furtherconnected to the leading bureaucrats, who share common economic in-terests in cattle and commerce (Good 1994: 499). This overlap betweenthe wealthy, the political leaders and the bureaucracy explains the lack of interest in equity in resource and income redistribution.

The theory of MEG, however, implies that growth has to lead to shifts inthe economic position of various groups attached to particular productionsectors. Hence, old economic elites have to be challenged and transformedor replaced, in order for new production sectors to appear, togethersignifying a break with old economic and social structures (Kuznets 1973:252). Such change may not be welcome in the eyes of the elite. Whilepre-modern growth is in their best interest, it is questionable whether theyare motivated to promote development, as this requires structural change

and not the continuity of existing political institutions.If the elite is interested in maintaining the status quo, the demandfor change and equity may come instead from the grass-roots level, butthis does not appear to be the case in Botswana, as there are no sizeablesocial movements or contesting political parties (Good 1994: 518). Politicalstability, consensus building and economic growth appear to havedampened the opposition. Diamonds have kept all content and happy, asthere has been some for all, and a lot for a few.

A N A L Y S I S A N D I M P L I C A T I O N S



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future. Income levels were higher than in many Asian regions and on parwith Latin America, the continent held great riches in natural resourcesand Africans were nally free to form their own destiny. Unfortunately,the continent soon became troubled by ethnic and racial conict, politicalunrest, violent crime, ravaging poverty, economic failure and resignation,predatory leaders and rampant corruption. Political and economic stag-nation, decline, and chaos have been widespread experiences since the1970s, and the overall economic crisis triggered the introduction of the Structural Adjustment Programmes in the 1980s. Since then, thecontinents aspirations have been lowered. Stability and growth have been viewed not just as acceptable or sufficient achievements, but even as thebest imaginable result, while development has been reduced to an almostforgotten utopia.

It is in this context that Botswana has qualied to be depicted as anexceptional success story. What the country has experienced for thelast 40 years is export-led growth combined with political stability. It isnot enough, however, to rest content with describing only the Botswanagrowth miracle, without discussing its fundamental socio-economic struc-ture and possible future improvements. The key issue is MEG, develop-ment and structural change.

Despite impressive growth, political stability, improved infrastructure,prudent nancial management, material modernisation and investmentsin human capital, Botswana is at present also experiencing a decline inpopulation, there is no signicant increase in productivity, little economic,social or ideological transformation, and only sporadic introduction of high levels of modern technology. Hence, four out of six characteristicsof MEG are missing, and the inference must be that Botswana is a case of pre-modern growth and not development, while the socio-economic

structure is being cemented and hailed as stability. Although continuityis an active process and may contain dynamic institutional change, itdoes not amount to a break with earlier structures, and the lack of struc-tural change is the reason behind faltering development indicators. Theadvances that have been made are indeed very promising, but they areonly pre-conditions for turning growth into development, while thereare few signs that structural change is promoted either by agricultureor industry, by the elite or the grass-roots level. Neither is equity partof Botswanas strategy, although it is a necessary ingredient in develop-ment.

Botswana has experienced a profound change in factor relative price,



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opportunity for development. This sector could substitute for missing capital formation in the low producing agriculture, and help transformagriculture as well as diversify industry. In order for this to be realised,however, the government has to step up and take on the challenge tobecome a developmental state.

The success of Pacic Asia provides several important lessons con-cerning economic development. It shows that development is possible, andthat a developmental state can create the institutional structure necessaryfor subsequent development. Through intentional policy choices, coun-tries such as Botswana can shift from a trade-led, natural resource inten-sive, limited industrialisation with narrow based growth, to a broaderdevelopment strategy. Further, although development is a processthat entails a discontinuous break with earlier structures, it is also path-dependent in that each country has a unique economic, political, andsocial history, and an existing institutional setting. All development stra-tegies must take this into account. The economic and political institutionalstructures are of equal importance in this process of development, and areclosely linked to one another (Adelman 2003: 1721).

Botswana offers lessons for other natural resource dependent develop-ing countries, in the importance of prudent management in avoiding the

natural resource curse and Dutch disease, as well as the blessing of leaderswho have been relatively modest in their rent seeking. It can thereby be amodel for how to achieve important pre-conditions for development, but itcannot be a model for actual development, since there has been notransformation into modernisation. The progress of Botswana is trulycommendable, but the goal for any society must be development throughMEG, and the next step is to leave the safe haven of stability and growth to venture into structural change and development. With a developmental

state promoting equity and bringing prosperity to all segments of society,Botswana could use its diamond wealth to diversify industry, transformagriculture, and become a modern society. This is necessary for long-runeconomic sustainability because it is development and not diamonds thatlasts forever.

N O T E S

1. Published under the maiden name of the present author.

R E F E R E N C E S



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