Wednesday, March 22, 2023

In a different way, diamonds have become Botswana’s curse

Often, there is talk that countries endowed with natural resourses suffer what is referred to as a “Resource Curse.”

Resource curse often results in plunder, corruption and even conflict.

Africa is replete with many countries which, despite their natural resources, find themselves knee deep in poverty, and even war as those countries struggle to come up with a working legal and governance framework to utilise those resources for the majority of their citizens.

In Africa, the most glaring example of a country that has suffered immensely as a result of its natrural resources is the Democratic Republic of the Congo.

But there are others, like Sierra Leone, Liberia, Angola and Guinea.

Last week, the Bank of Botswana released its annual report in which the central bank deals with these problems, albeit in a slightly different context.

While paying tribute to Botswana’s development path over the years, especially the now much celebrated “economic prudence”, the report also goes at length to highlight new challenges that the country faces.

Under the theme, “Fiscal Resources: Reducing Reliance of Public Expenditure on Mineral Revenue”, the report is a splendid read for anyone interested not just on the difficulties Botswana faces as the country struggles to wean itself from the excessive influence of revenue that comes from diamonds.

There is nothing inherently wrong drawing money from diamonds as Botswana has done.

The risk, however, as Botswana’s development path has proved time after time, is when there is a failure to diversify the economy to allow more streams of revenue to come into play.

“There are outstanding examples of countries that have been successful in harnessing returns from natural resources, in terms of raising living standards and sustainable growth. Even then, there are cases where the dominance and dependence on the natural resource sector has been persistent, with minimal progress in economic diversification, in this way suggesting weak prospects for the long term economic performance post depletion of natural resources.”

We cannot find a better and more succint analysis of Botswana’s economic realities than this.

But for Botswana, while a failure to diversify the economy has attracted the country’s attention, the truth of the matter is that it is only one part of the equation.

Another equally important challenge, which unfortunately has not received sufficient attention, is the failure by the country to efficiently use revenue from diamonds.

Inefficiency, poor productivity and outright absence of capacity are key issues that have dogged Botswana’s development path in very much the same way as a failure to diversify the economy.

Because money has often not been a big issue for Botswana, there has become an entrenched culture to use that money in the most inefficient of ways.

In the days preceding the global crisis, these inefficiencies could easily be hidden by the fact that government could always pump in money to offset its structural and productivity defficiences.
But since 2008, when money all of a sudden became a big issue for Botswana, prompting government to take to a roadshow to borrow from the international markets, those inefficiencies have been laid bare.

Big projects that are financed by borrowed money have gone un-completed; there are delays but also cost overrruns which could easily have been swept under the carpet during the era when money was not so much an issue.

As the country grapples with economic diversification, it is very important that we also make efforts to improve productivity, enhance efficiencies and try to wean oursrelves from the culture of covering ourselves with excess money supply to hide what are in effect glaring structural weaknesses that take away resources that could be used gainfully elsewhere.

In here as well, the report by Bank of Botswana comes in handy and paints a scary picture why the time is running out for Botswana to change the way we have been doing things; “in the context of abundant revenue from natural reasons there is less urgency to focus on growth-friendly economic management, bureaucratic efficiency, institutional quality, productivity improvements and economy-wide competitiveness.”

As a country we are at a moment of economic development where we can gain more from enhanced productivity than from increased diamond sales.

As emperical efficiency shows, Debswana diamonds will in the near future become very costly to get off the ground. The only clear savior can, therefore, be enhanced productivity.


Read this week's paper