A paper present to the International Economics & Law Conference, 2016, by John De Val

 

3-botswana

Botswana is a sparsely populated, arid, land-locked country in Africa which in 1966 when it achieved independence was also one of the poorest countries in the world with a per capita income of just $70 a year and a mere 12 km of paved road. It was surrounded by hostile white-ruled regimes. Not a promising scenario. Yet over the next sixty or so years its economy achieved an average rate of real growth in GDP per capita which has been the fastest in the world. How did this come about?

Before we explore that question I would like to start with a snapshot of the country provided by a fictional character in probably the most widely read book featuring Botswana; The No 1 Ladies’ Detective Agency by Alexander McCall Smith

“I love our country and I am proud to be a Motswana. There’s no other country in Africa that can hold up its head the way we can. We have no political prisoners, and never have had any. We have democracy. We have been careful. The Bank of Botswana is full of money, from our diamonds. We owe nothing.

“But things were bad in the past. Before we built our country we had to go off to South Africa to work. We went to the mines, just as people did from Lesotho and Mozambique and Malawi and all those countries. The mines sucked our men in and left the old men and the children at home. We dug for gold and diamonds and made those white men rich. They built their big houses, with their walls and their cars. And we dug below them and brought out the rock on which they built it all.

“I went to the mines when I was eighteen. We were the Bechuanaland Protectorate then, and the British ran our country, to protect us from the Boers, or that is what they said. There was a Commissioner down in Mafeking, over the border in South Africa, and he would come up the road and speak to the chiefs. He would say, ‘You do this thing; you do that thing.’ And the chiefs all obeyed him because they knew that if they did not, he would have them deposed. But some of them were clever, and, while the British said, ‘You do this’, they would say ‘Yes, sir, I will do that’ and all the time, behind their back, they did the other thing or they just pretended to do something. So for many years, nothing at all happened. It was a good system of government, because most people want nothing to happen. That is the problem with government these days. They want to do things all the time; they are always busy thinking of what things they can do next. That is not what people want. People want to be left alone to look after their cattle.”

Why has Botswana prospered when so many other African countries blessed with abundant natural resources have not? The significant factors underlying Botswana’s success can be summarised as ‘Good Government, Good Policies and Good Luck’.

Good Government

Descriptions of governmental arrangements tend to be somewhat dry and unexciting so I will concentrate on the history of how Botswana ended up with the institutions it has today and which have served it well since Independence. In doing so, important principles emerge.

Botswana’s modern political system evolved both from the traditional culture of the Tswana people, the dominant tribe in the country, and the British tradition introduced at the end of the 19th century when the country became a British Protectorate bearing the name of Bechuanaland. During the centuries prior to the establishment of the Protectorate in 1885, aggressive expansion by both black and white neighbours had dispersed the Tswana tribes over a wide area, including what is now Botswana. Two features profoundly shaped the response of the Tswana people; the abundance of land and the mobility of the principal capital asset, cattle. Together, these meant that it was relatively easy to move on rather than to fight to retain control over a specific territory. The exit option applied not only to the tribe as a whole but also to the various Tswana subtribes. The result was a dispersion of geographically separated groups, with a common language and institutions, reflecting a common heritage.

The Tswana settlement colonies, much as the European settler colonies elsewhere in Africa, needed a modicum of public goods such as law and order, defence against raiders, and public works. These services were provided through the adaptation of Tswana traditions. Every tribe had so-called “age regiments” consisting of cohorts of similar aged individuals who had been initiated together as youths in separate male and female regiments. When summoned by the chief, an age regiment was required to perform duties for the common good.

The role and power of the chiefs were profoundly influenced by the ease of exit. To persuade the tribal members to accept the chief’s leadership for the common good, an implicit bargain between the chief and his people emerged. The chief provided leadership, but the people required accountability. Here is one description of the chief’s duties;

He was expected to watch over the interests of his subjects, and keep informed of tribal affairs generally; he therefore spent much time daily at his council-place, where anybody could approach him directly with news, petitions, and complaints…If his own conduct was unsatisfactory, he could be warned or reprimanded by his advisers or at public assemblies; if he ruled despotically or repeatedly neglected his duties, the people would begin to desert him, or a more popular relative would try to oust him by force.”

The chief served as judge in both criminal and civil matters but was not free to make up the rules of the game. In other words, the chief was not above the law of the tribe. This was illustrated by the admonition given a new ruler at his installation; “The king is king by the grace of the people”. Where the chief had to arbitrate between members or groups, great value was placed on achieving a compromise with which all could live, while not triggering an exit by a disgruntled minority.

The harsh climate had an important effect on shaping attitudes towards good times and bad. The value of saving during times of plenty, and sharing during times of drought, profoundly shaped Tswana attitudes well beyond Independence.

In each Tswana polity the elite was firmly in charge of both tribal politics and the economy. The chief was assisted in his duties by his counsellors and in villages outside the principal one, by headmen. Land was held by the tribe and allocated by the chief. By tradition, each family was entitled to allocations for a home, for crops, and for grazing. Since the principal asset was cattle, owners of large cattle herds were the effective economic elite. This elite had a clear interest in maintaining property rights, and did so.  Development economists often emphasize that property rights and the rule of law are the key factors explaining development success.

In 1885 much of the territory of modern Botswana was established as the Bechuanaland Protectorate. As such, it was not a Crown Colony. In the circumstances of that time, this minimalist arrangement suited both the British and the Tswana chiefs. Botswana did not have the rich agricultural lands sought by European settlers elsewhere in Africa (e.g. Kenya). There were few known natural resources worth exploiting. But given the existence of minerals in the region, the potential for finding such resources did exist. At the same time, the mobility of the economy’s principal capital asset – cattle – meant that a government’s ability to engage in predatory taxation would be substantially limited. Hence the imperial power had little incentive to establish firm control over Botswana’s economy. As far as the British were concerned, the Protectorate arrangement thwarted the advances of the Germans from the west (in present day Namibia) and the Boers from the east in the Transvaal. This desirable outcome was achieved at minimal out-of-pocket cost. As for the Tswana chiefs, the loss of effective power was also minimal, at least in the initial stages; the British were to protect the territory from external aggression, while the chiefs were to govern internally, (quote) “in their own fashion”.

The Protectorate remained a backwater for the British well into the second half of the twentieth century. The role of governor was carried out by the British high commissioner to the Union of South Africa through a resident commissioner who was not actually resident in the territory but in Mafeking across the border in South Africa. The British continued the policy of leaving the chiefs to govern internally, and they reinforced the authority of these chiefs, if necessary, by force. The identification of a specific geographic territory with each tribe gradually came to mean that each Tswana chief gained jurisdiction over all residents of his territory, whether Tswana or non-Tswana. The exit option thus no longer existed. While the chief once appointed, had considerable power within his tribal territory, the British remained ready to remove him should they deem him unacceptable.

Government services were provided through a combination of tribal and Protectorate initiative. Both had to be financed from local sources; there was no government money from Britain until much later. Given the very limited tax base, services were consequently minimal. The result was that, according to one observer, ‘public services fell far below an acceptable level for a territory administered by imperial Britain.’

There was very little change until after the Second World War. Up until then, the assumption by both British and South African governments was that Bechuanaland, along with Swaziland and Basutoland, would be incorporated into South Africa. However following the 1948 victory of the National Party in South Africa, with its increasing emphasis on apartheid, this became an unacceptable option. There followed an extensive consultation process which culminated in new constitutional arrangements which lasted until Independence in 1968. The process by which this emerged was described by the resident commissioner of the time as “decision-making by consensus”.

The political forces in the newly independent Republic displayed a fundamental continuity with the traditional society of the previous century. The virtue of compromise remained firmly embedded in the political culture. This continuity with tradition stood in sharp contrast to the situation that prevailed in many other African countries at independence. All too often in these countries independence elections simply resulted in a winner-take-all situation.

Yet enormous changes were required in Botswana. The country, although well governed, was very poor. A modern government apparatus had to be constructed, both institutionally and physically. The nature and functioning of Parliament, the Cabinet, and the Civil Service had to be settled. These new institutions drew heavily on the experience of the years leading up to Independence, moving from advisory councils to legislative and executive councils, and eventually to an elected form of self-government. Various government services ranging from education to health to roads to finance had to be established. The physical capital city, Gaberone, including government buildings and housing officers, was still under construction.

In addition to the consensus-seeking approach to government, several other features stand out in Botswana’s response to this challenge;

  • In keeping with the consultative approach, the practice of forming a presidential commission to investigate options and to propose a policy framework was frequently adopted for difficult or complex problems. The resultant report would then form the basis for a so-called ‘white paper’ spelling out the proposed policy course and underlying rationale. In adopting this approach, the government risked facing recommendations that it did not favour, but it proved willing to do this.
  • Many individual ministers served for extended periods in the same portfolio. Similarly many senior civil servants remained in the same ministry for extended periods. In the process, both ministers and civil servants became highly knowledgeable about the policies and problems of their ministries, and developed institutional memories.
  • In assembling a modern government apparatus. Botswana drew heavily on foreign technical assistance, from the British initially, but soon from many other donors. Given the limited stock of educated Batswana, such personnel were clearly required if the standard of public administration was to be sustained of a quality necessary for rapid growth. Not only did these people contribute to a relatively efficient government, they also facilitated the transmission and application of ideas and technologies from around the world. In contrast with the ‘two week experts’ intent on applying a ‘one-size-fits-all’ template to this fortnight’s assignment, or pushing the agenda of their funding agency, many of the long-term technical assistance personnel became knowledgeable about the nuances of local circumstances, including the institutional capacity to implement agreed-upon policies.
  • The manifestation of the development planning process were the National Development Plans. These were not just a public relations exercise to attract donor funds; they were taken very seriously and became a central part of the process of government. The NDPs articulated government’s policies on a wide range of issues, not just narrow economic questions. For example, the NDP for 1973-78 explained that the plan was formulated in the context of “Botswana’s five national principles which are rooted in Botswana’s past traditions and culture. These are;
  • Democracy
  • Development
  • Self reliance
  • Unity
  • Social harmony

Since Independence, policies have been formulated in the name of unity and social harmony and have deliberately avoided any ethnic references. In the light of circumstances elsewhere in Africa, including South Africa, this emphasis on unity and social harmony is perhaps not surprising.

Finally, Botswana was fortunate with its leaders. Its first president was Seretse Khama, a grandson of one of the chiefs of the most powerful tribe and who had been well educated. The name ‘Seretse’ means ‘the clay that binds together’. It was to be an extraordinarily apt name, as we shall see as we consider how policy with regard to the mineral sector was developed.

Minerals

A key policy adopted at an early stage by Seretse Khama’s government concerned mineral rights. Two issues required attention. First traditional rights to land and, implicitly, the minerals underground were vested in individual tribes. If these rights were unchanged, then a chief, in whose territory a major mineral discovery happened to lie, would have considerable economic and political power. In the early 1960s, most of the known mineral deposits and the major initial finds were located in the territory of Khama’s own tribe, forcing him to choose between his tribe and the nation. Second, in the past, some mineral rights had already been conceded to private companies in parts of the country.

After Independence, the central government legislated itself as holder of mineral rights in tribal lands. It dealt with private concessions by levying a mineral rights tax, which would be reduced to zero by engaging in sufficient exploration. This policy stimulated exploration where there was a genuine prospect of finding a mineral deposit and led to the surrender of inactive mineral concessions to the state.

Khama’s choice of vesting mineral rights in the central government would prove to be the key to establishing the authority of the nation-state. Rather than choosing to favour his home tribe and thereby risk losing support elsewhere in the country, Khama chose to direct the state’s share of the mineral wealth to national purposes. However, for this policy to bear fruit the actual discovery of valuable mineral deposits was required and then, following this discovery, ensuring that the state would indeed capture some of the wealth.

Several international companies had conducted an active minerals exploration  programme in the years leading up to Independence. Among the successful prospecting endeavours was that of the South African diamond company DeBeers, which discovered a substantial diamond deposit shortly after Independence. This was followed by the discovery of an even larger diamond deposit in the 1970s.

With the discovery of significant mineral deposits, the Botswana government faced the task of devising a minerals taxation policy. In some respects, small, poor Botswana appeared to be at a significant disadvantage in negotiations with major international mineral companies. Yet Botswana’s pragmatic approach led to substantial investment on the part of international companies, which, in some cases, yielded very significant revenues for the central government.

Government recognised that the value of the value of any deposit was subject to considerable uncertainty. In such circumstances, a fixed royalty* rate could turn out to be charging far more or far less than the rent attributable to the deposit. Rather than relying solely on a high fixed royalty rate, government required, in addition to a modest royalty, that it should be given a portion of the equity in the mining operation. This yielded government a significant share of the returns in highly profitable operations (such as diamonds) and very little return on marginal operations, without damaging private investment incentives.

In addition to the question of the distribution of the return from the mineral deposits between the nation and the foreign investors, there was also the question of exercising Botswana’s market power in the world market for diamonds. With a substantial share of actual, plus potential, world gem diamond production, there was clearly some market power to be exercised. Botswana bought into a strategy aimed at capturing a share of those rents by willingly co-operating with the DeBeers-led Central Selling Organization. Botswana has since grown to be the biggest diamond producing country in the world and the marketing arrangement with DeBeers has enabled it to capture considerable mineral rents.

Not all of Botswana’s mineral deposits proved to be rich and, hence, capable of generating significant revenues for the government. None of the various deposits that had been exploited prior to Independence – gold, silver, kyanite, asbestos, manganese – proved to be economical for long-term exploitation in the early post-war years and there have been technical production difficulties with others. Despite these problems, however, because of the unusually profitable diamond production, mineral revenues have been sizeable, quickly becoming government’s principal source of revenue.

In other African countries, significant streams of revenue from the exploitation of natural resources have not proved a blessing. Indeed, quite the opposite, they have proved a curse. The concentration of revenues with the governments as the channel of benefits to the rest of the economy can lead to a host of problems, including so-called ‘rent-seeking’, corruption, and the efficiency losses that result from them. It is not surprising that, with easily accessible wealth concentration in the hands of the government, malignant dictatorships and predatory regimes often thrive.

Botswana has overcome the threat of the resource curse. Its fiscal policy has been prudent and despite the temptation to increase public expenditure in line with public revenue it has continued to run a fiscal surplus and what expenditure has been incurred has been on growth promoting projects such as basic infrastructure, including electricity and roads, and government services to the mining and agricultural sectors. Education expenditure grew dramatically and health spending, although not nearly as large as that on education, was focused on the provision of primary health care throughout the country rather than on tertiary care for the urban elite.

The country does face challenges –diamonds may last forever but new sources of diamonds will be more difficult to find. Unemployment is stubbornly high at around 17% and, as a consequence, income inequality in Botswana is among the highest in the world. HIV/AIDS has further exacerbated this situation. But the combination of good governance, good policies and financial prudence means that Botswana is better equipped to face those challenges than many other countries around the world.

 

Bibliography

Clark Leith, J. (2005). Why Botswana Prospered. Montreal: McGill-Queen’s University Press.