Week 3 – Botswana case study

Economic and Development Problems in Africa

 For next week’s assignment
“Botswana: A Diamond in the Rough” – HBS Case Study
• 650 words
• Due Tuesday 21 Feb 8-9AM lecture
• Arial, 11 font, 1.5 line spacing
• Answer the following three questions:
1. Is Botswana a success? (provide reasons why and why not)
2. What do you believe were the 3 main factors that made
Botswana successful?
3. Do you think Botswana’s success is replicable elsewhere in
Africa? Why? Why not?
Case Study
 Skills to learn
• Read for information – not all information is of equal value.
Hence highlighting/underlining and labelling your document.

• Public speaking and being able to talk on demand.

• Extract information from data.

• Playing devil’s advocate – learning happens at the extremes

not in the middle of the road. Don’t be afraid to take a
position.
 Botswana context

• Land locked country

• Drought prone
• Desert
• “Bad neighbourhood”
• Initially: little in terms of infrastructure
and human capital
• Minimal British interference in
protectorate
• Resource abundant
• Diamonds
 Resource curse
• Angola – Congo – Nigeria – Saudi Arabia
– Venezuela...
• Economy, exports, public finances
extremely dependent on one good
• Decreases incentives to invest and to
manage resources prudently
• Dutch disease – forex, exchange rates
and manufacturing
• Patrimony – cf for later sessions!!

Why did Botswana succeed were others

have failed?
 Discussion
• Is Botswana a success story?
Yes No
1. Amazing growth, averaging 10% per year over 1. Started from a low base – fast growth inevitable
four decades (Exhibit 4) (Exhibit 2)

2. Fastest growing country in last 35 years 2. Growth fueled only by diamonds – in 2000
diamond’s contributed 30% of the nation’s GDP,
3. Other poor countries in region did not manage to 70-80% of its exports and 50% of government
grow (Exhibit 10) revenues (Exhibit 3)

4. Good fiscal/macro management of resources 3. High unemployment – almost 15% according to

some sources
5. Diamond returns invested in infrastructure,
education and health 4. 35.8% adult HIV/AIDS infection – The World Bank
further estimates that in the next 10 years AIDS
6. Democracy, free and fair elections would reduce 20% off the government budget
and bring about a 13% reduction in income of the
7. No civil war poorest households

8. Best social indicators among African neighbors 5. Lack of skilled labor

9. Ranked 24/101 countries on transparency

International’s Corruption Index (Exhibit 11)
 Discussion
• What were the local institutions in Botswana?
A – Tribal institution set up to discuss issues of public
interest. It helped administrate the law and allocate
assets.
– Need for accountability and consensus
– Transparency and voice (parallels with democracy)
 Discussion
• Why were local institutions allowed to flourish?
A- One of the main reasons why Botswana’s local
institutions were allowed to flourish was that the
British colonial powers had no interest in this
‘colonial backwater’...why?
– 1966: Botswana gains independence
» “Botswana is a poor country not only in terms of per capita
income but also in terms of natural resources”
– 1968: Copper/nickel/diamonds discovered
» “Botswana is a poor country but it possesses sufficient natural
resources to permit, with outside assistance, rapid development”
 Discussion
• What accounts for this performance?

Institutions Policies
1. Kgotla: Tradition of prudence and consensus; 1. No nationalizations
Democracy
2. Partnership with De Beers –
2. Respect for the rule of law: Constitition: protect • De Beers  Maximize profits
property rights • Government invest in infrastrcutre,
health and education
3. Market oriented – Investor friendly environment 3. Fiscal deficits frowned upon: prudent
macroeconomic management.
4. Good bureacracy
4. Exchange rate management – keep competititve
ER despite surpluses and growing diamond
revenue

Is it easier to grow if you start with nothing or if you are resource abundant? (Ex 9+10)
 Is Botswana’s success replicable?
• Are institutions and policies transplantable?
– Washington Consensus?
• Stabilize
• Liberalize
• Privatize
– Which institutions are/aren’t transplantable?

• Does one need a De Beers to make a Botswana

success story? Are they always around?
 Challenges and solutions

Problem Solution Issues

1. Diversify Will FDI come? (Exhibit 12)
Will they stay?
2. Grow Attract FDI Will FDI hire unskilled labor?
Will it help jumpstart domestic
3. Unemployment activity?

More government? Resources?

Resources? Change culture?

4. AIDS

Is Botswana’s continued success dependent on De Beers and the continuation of the

diamond cartel?
 Conclusion
• Importance of institutions and policies (+ leaders!)

• Most African countries are well endowed with natural

resources but are unable to convert this into sustained
growth.

• Mutually beneficial partnerships (De Beers)

• Why did these particular institutions develop in Botswana

and not elsewhere?
 Group presentations
- 5% of FINAL mark (group-work mark)
- 20 minutes
Things to discuss 5%
i. Brief history/background
ii. Political environment
iii. Economy
iv. Social + cultural context
v. 3 main problems (+Solutions?)

Countries
1. Botswana (Week 3)
2. Kenya (Week 4)
3. DRC (Week 6)
4. Sudan (N+S) (Week 7)
5. Ivory Coast (Week 8)
6. Ghana (Week 10)
7. Zambia (Week 11)

 Marking criteria: Presentation (20%), Content (50%), Interesting (30%)

14