Week 3

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• Week 3 Botswana case study
• Economic and Development Problems in Africa

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For next weeks 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
• Is Botswana a success? (provide reasons why and
  why not)
• What do you believe were the 3 main factors that
  made Botswana successful?
• Do you think Botswanas success is replicable
  elsewhere in Africa? Why? Why not?

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Case Study
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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 devils advocate learning happens at
  the extremes not in the middle of the road. Dont
  be afraid to take a position.

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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

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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?

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Discussion

• Is Botswana a success story?

• Yes
• Amazing growth, averaging 10 per year over four
  decades (Exhibit 4)
• Fastest growing country in last 35 years
• Other poor countries in region did not manage to
  grow (Exhibit 10)
• Good fiscal/macro management of resources
• Diamond returns invested in infrastructure,
  education and health
• Democracy, free and fair elections
• No civil war
• Best social indicators among African neighbors
• Ranked 24/101 countries on transparency
  Internationals Corruption Index (Exhibit 11)

• No
• Started from a low base fast growth inevitable
  (Exhibit 2)
• Growth fueled only by diamonds in 2000
  diamonds contributed 30 of the nations GDP,
  70-80 of its exports and 50 of government
  revenues (Exhibit 3)
• High unemployment almost 15 according to some
  sources
• 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
• Lack of skilled labor

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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)

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Discussion

• Why were local institutions allowed to flourish?
• A- One of the main reasons why Botswanas 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

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Discussion

• What accounts for this performance?

• Institutions
• Kgotla Tradition of prudence and consensus
  Democracy
• Respect for the rule of law Constitition
  protect property rights
• Market oriented Investor friendly environment
• Good bureacracy

• Policies
• No nationalizations
• Partnership with De Beers
• De Beers ? Maximize profits
• Government? invest in infrastrcutre, health and
  education
• Fiscal deficits frowned upon prudent
  macroeconomic management.
• 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 910)
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Is Botswanas success replicable?

• Are institutions and policies transplantable?
• Washington Consensus?
• Stabilize
• Liberalize
• Privatize
• Which institutions are/arent transplantable?
• Does one need a De Beers to make a Botswana
  success story? Are they always around?

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Challenges and solutions

• Problem
• Diversify
• Grow
• Unemployment
• AIDS

• Solution
• Attract FDI
• More government?

• Issues
• Will FDI come? (Exhibit 12)
• Will they stay?
• Will FDI hire unskilled labor?
• Will it help jumpstart domestic activity?
• Resources?
• Resources? Change culture?

Is Botswanas continued success dependent on De
Beers and the continuation of the diamond cartel?
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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?

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Group presentations

• 5 of FINAL mark (group-work mark)
• 20 minutes
• Things to discuss
• Brief history/background
• Political environment
• Economy
• Social cultural context
• 3 main problems (Solutions?)
• Countries
• Botswana (Week 3)
• Kenya (Week 4)
• DRC (Week 6)
• Sudan (NS) (Week 7)
• Ivory Coast (Week 8)
• Ghana (Week 10)
• Zambia (Week 11)
• ? Marking criteria Presentation (20), Content
  (50), Interesting (30)

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