EXPLAINING AFRICAN GROWTH PERFORMANCE THE BOTSWANA CASE STUDY ** by G S Maipose and T C Matsheka University of Botswana 1.0 INTRODUCTION AND OVERVIEW 1.1 Background The main objective of this paper is to explain Botswana’s economic growth performance for cross-country comparison. The growth record of independent Botswana has been impressive. From being one of the poorest countries in the wold at independence in 1966 and dependent on foreign aid for all of its development spending and most of its recurrent budget, Botswana has enjoyed rapid economic growth with decreasing dependence on foreign aid and is now classified by the World Bank as an upper middle income country with a per capita GDP of more than US $6000. In a region where the average country has been either poorer than at independence or/and in socio-economic crisis, Botswana stands out as one of the few countries in Africa with both an impressive sustainable development and political stability records. The country is also the region’s longest democracy with good governance/state management record. Looking at Botswana’s economic accomplishment over the last thirty five years’ period or so, the country has sustained the world’s highest real GDP growth rate and GDP per capita growth rates (Leith 2001). The successful growth of the economy is mainly driven by mineral revenue from diamonds – a resource, which the state has used strategically to develop socio-economic infrastructure and human resource that has been rated among the highest levels in Africa in the UNDP Human Resource Development index since 1992. The role of the state in Botswana is, in many respects, similar with the development success story of the “East Asian miracle” experience where the state has been strategically interventionist rather than crisis driven under capitalist market economic development formula. But the institutional context of rapid growth in Botswana – that is a multi-party democratic system of government – offers a sharp and refreshing contrast to authoritative/undemocratic regimes elsewhere in China and the East Asian miracle which do not have a history of democratic systems/settings of government in the first place until quite recently. 1 However, it is also important to note that Botswana’s strong economic growth and deserved praises for relative efficient institutions have not translated into significant structural economic diversification and poverty alleviation. Like many other African countries, Botswana is still basically a mono-economy, heavily dependent on one mineral, diamonds and it is riddled with high levels of poverty. With unemployment level estimated at nearly twenty percent and with about 47 per cent of Batswana living below the poverty line (BIDPA, 2000) – close to the African average of fifty percent – it is clear that the benefits of spectacular economic growth have not been well distributed, and Botswana exemplifies the huge income differentials elsewhere on the continent. The education system, considered one of the best in Africa, appears to have not yet sufficiently empowered citizens to either access jobs in a highly competitive labour market or and to innovatively take up/create business opportunities despite excess liquidity in the market and public sector business incentives. Although there has been a relatively good health system that provides free primary health care, the country suffers from one of the highest rates of HIV/AIDS infections in the world, a problem that has already began to undermine successes in human resources development with adverse implications for overall socio-economic development. Further, it has been recognized that the development strategy of state-led development that Botswana has followed over the years has reached its limits; and although the government is deservedly praised for being largely non-corrupt, the bureaucracy has out-grown its capacity for effective policy implementation ( ). Recognition of the above limits together with the experience of rapid growth with limited structural economic transformation have necessitated the need for energizing the role of private sector and the need for economic diversification. These concerns are high on the national agenda, as evidenced by the themes of the current national development plan (NDP8), Nation Vision 216, and annual budgets – all of which emphasise the need for sustainable broad-based growth – premised on private sector led development and scaling down the sheer size of government through privatisation. Thus, although economic growth has been very rapid so far, there are grounds to think that it was not probably as rapid and diversified as it could have been and long-term self-sustaining growth may be 2 questioned in view of a few but crucial negative dimensions/constraints indicated above; and the rate of real growth has slowed down during the last decade or rather in recent years. Nevertheless, Botswana’s economic growth record remains exceptional. Since such success stories are rare (at least in Africa) the Botswana case provides an opportunity to examine what can go right in explaining African economic growth performance. 1.2 Objectives and Main Observations of the Study Primarily drawing on growth accounting decompositions and cross-country endogenous growth literature, the main purpose of this paper is to explain Botswana’s economic growth performance and general social development from 1960s to the end of 1990s and start of the new millennium. This is done by highlighting the salient features of the growth process and by showing which and how different factors contributed to this process. The analysis is explored in comparison with cross-country norms following Beno Ndulu and Steve O’ Connel (1999) for macro-economic growth data and Macartan Humphreys (2000) for social and political development data. The analysis has also been complemented by the review of some relevant political economy readings, such as Bates and Krueger (1993) provided as background information on economic growth for this project and some cited literature on Botswana. We have not been able to complete filling in all data gaps - posing a major problem for implementing the regression-based growth decomposition. But the thrust of the basic issues and arguments, derived from other sources, are reasonably clear within a common framework, making it possible to compare and contrast the cases and draw inferences from them. Following our interpretation/review of the evidence, Botswana stands out without doubt, as one of the few countries in Africa with an impressive economic growth record, and our explanation endorses a general consensus among the country’s development analysts that Botswana has achieved rapid economic growth because it managed to adopt good policies and also to manage the economy and the country effectively. It is the acknowledgement of the country’s long track record of good economic policies, prudent 3 economic management and good governance given the supportive institutional framework over the years. Batswana are deeply suspicious of praise singers – preferring (in line with the country’s democratic tradition), engaging in a debate on the challenges confronting the nation and the region rather than on being showered with praises/epitaphs. Thus the paper is also critical and ends with challenges. In the context of this study, Botswana’s performance illustratively deviates positively well above the African average or the mean in the cross-country norms, which have been designed for the AERC Collaborative Research Project Coordinators to compare economic and political performance. The average rate of growth over the country’s post-independence period of three and half decades and the institutional context of a stable and largely less corrupt democratic multi-party system of government over the same period are outstanding in cross-country comparative analysis of all the African countries covered by the project with any other country in Africa. The fundamental question is: Why and how? Pursuing the route of policy influence in explaining differences in cross-country growth performance, our main hypothesis, is that the qualities of both the policy environment and governance, under pinned by the quality of leadership relative effectiveness of the inherited and newly established institutions, combined to positively influence dynamics of rapid economic growth and development. Given the few but crucial dimensions/constraints noted above, the thrust of the paper suggests that although growth has been very rapid so far, it was not probably as rapid as it would have been in the absence of the noted constraints which are subsequently elaborated upon in the text. Thus, the economic policies and established economic and political institutional context modified over time - interacted to induce and sustain the quality of policies the leadership adopted and sustained to generate the development evidence we now observe in retrospect. Fundamental aspects of democratic culture, state and public good and private property ownership with relatively effective property rights and the role of the state in administering public goods are relatively well established/entranched in Botswana’s history and culture (See Schapera 1967:43-64; Parsons 1984:16-22 as quoted in Robison et.al 2001 – brief political history 2001:9-15). 4 The paper is divided into four main sections. The first section discusses macro-economic and sectoral performance of the economy and this is subdivided into three broad periods for telling