Botswana - An Economic Success

Botswana's Economic Success 

How, against a background of poor performance, has Botswana performed better economically than any other country in the world in the last 35 years? How did it achieve an annual rate of growth of 7.7% between 1965 and 1998? This chapter looks at Botswana’s exceptional growth and the growth of the surrounding countries in sub-Saharan Africa.

Botswana did not start out with favourable conditions at independence. It is predominantly tropical and landlocked both of which are often seen as disadvantages by economists. Diamonds have been important for growth, but in other countries natural resource abundance has caused civil war.

Botswana’s good economic policies, and therefore its economic success, reflect its institutions or more particularly its institutions of private property. These protect the property rights of actual and potential investors, provide political stability, and ensure that the political elites are constrained by the political system. There are three factors which control institution building:

• Economic interests: A good institutional set up will lead to outcomes that are in the interest of the politically powerful agents, such as institutions that restrict state predation.
• Political losers: Elites that are relatively secure in their position will be less afraid of change, and therefore be less likely to block such change.
• Constraints: When institutions limit the powers of rulers and the range of distortionary policies that they can pursue, good policies are more likely to arise. Constraints reduce the political stakes and therefore increase political stability and imply that other groups are more willing to delegate power to the state.

Botswana is an optimistic example of what can be done with the appropriate efforts towards institutional design, even starting with unfavourable economic conditions. The success of Botswana is due to its adoption of good policies. These have prompted rapid accumulation, investment and the socially efficient exploitation of resource rents. These policies resulted from an underlying set of institutions of private property that encouraged investment and economic development. The factors that could account for the distinct institutional equilibrium that emerged after independence are:

• Botswana possessed precolonial tribal institutions that encouraged broad-based participation and placed constraints on political elites.
• British colonisation had a limited effect on these precolonial institutions because of the peripheral nature of Botswana to the British Empire.
• Upon independence, the most important rural interests, chiefs and cattle-owners, were politically powerful and it was in their economic interest to enforce property rights.
• The revenues from diamonds generated enough rents for the main political actors, increasing the opportunity cost of, and discouraging, further rent seeking.
• The post-independence political leaders, in particular Seretse Khama and Quett Masire, made a number of sensible decisions.