Transcript Botswana: A Diamond in the Rough

Week 3 – Botswana case study
Economic and Development Problems in Africa
13 Aug 2012
Case Study
“Botswana: A Diamond in the Rough” – HBS Case Study
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?
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.
• Importance of institutions
Botswana context
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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
• Why study Botswana?
Botswana has the highest sustained real output growth
of any country in the world (>10% for 40 years) from
$80$3600
Discussion
• Is Botswana a success story?
Yes
No
1.
Amazing growth, averaging 10% per year over
four decades (Exhibit 4)
1.
Started from a low base – fast growth inevitable
(Exhibit 2)
2.
Fastest growing country in last 35 years
2.
3.
Other poor countries in region did not manage to
grow (Exhibit 10)
Growth fueled only by diamonds – in 2000
diamond’s contributed 30% of the nation’s GDP,
70-80% of its exports and 50% of government
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
would reduce 20% off the government budget
and bring about a 13% reduction in income of
the poorest households
5.
Lack of skilled labor
6.
Democracy, free and fair elections
7.
No civil war
8.
Best social indicators among African neighbors
9.
Ranked 24/101 countries on transparency
International’s Corruption Index (Exhibit 11)
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
• 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)
•
An institution is any structure or mechanism of social
order and cooperation governing the behavior of a set of individuals within a given
human community. Institutions are identified with a social purpose, transcending
individual human lives and intention by mediating the rules that govern
cooperative human behavior.[1]
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
1.
Kgotla: Tradition of prudence and consensus;
Democracy
2.
Respect for the rule of law: Constitition: protect
property rights
3.
Market oriented – Investor friendly environment
4.
Good bureacracy
Policies
1.
No nationalizations
2.
Partnership with De Beers –
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De Beers  Maximize profits
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Government invest in infrastrcutre,
health and education
Fiscal deficits frowned upon: prudent
macroeconomic management.
3.
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)
Questions ???
1. Is Botswana’s performance likely to continue?
2. Would it be better or worse for the government if
they found out tomorrow that the diamonds would
run out in 2025?
3. Is it easier to grow if you start with nothing or if you
are resource abundant? (Ex 9+10)
4. Is Botswana’s success replicable in other African
countries?
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
1.
Diversify
2.
Grow
3.
Unemployment
Solution
Issues
Attract FDI
Will FDI come? (Exhibit 12)
Will they stay?
Will FDI hire unskilled labor?
Will it help jumpstart domestic
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?
•Is the growth sustainable?
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
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Groups of 6
10% of FINAL mark (group-work mark)
20 minutes (+10 min questions)
3 present & 3 answer questions
Things to discuss
i.
ii.
iii.
iv.
v.
Brief history/background
Political environment
Economy
Social + cultural context
3 main problems (+Solutions?)
Countries
1.
2.
3.
4.
5.
6.
7.
8.
15
Kenya (Week 4)
Zimbabwe (Week 5)
DRC (Week 6)
Sudan (N+S) (Week 7)
Ivory Coast (Week 8)
Mozambique (Week 9)
Ghana (Week 10)
Zambia (Week 11)
 Marking criteria: Presentation (20%), Content (50%), Interesting (30%)
10%