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Is there a Dutch disease in Botswana?
ARTICLE IN PRESS Resources Policy 35 (2010) 14–19
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Is there a Dutch disease in Botswana? Scott Pegg Department of Political Science, Indiana University Purdue University Indianapolis (IUPUI), 425 University Boulevard, Indianapolis, IN 46202-5140, USA
a r t i c l e in f o
a b s t r a c t
Article history: Received 10 July 2008 Received in revised form 20 July 2009 Accepted 22 July 2009
The Dutch disease is regularly evoked in the resource curse literature and remains a frequent explanation for the poor economic performance found in many resource-rich countries. Given Botswana’s high rate of per capita GDP growth, it might seem superfluous at first glance to ask whether or not there is a Dutch disease in Botswana. Yet, Botswana merits study here both as a significant potential exception to any posited inevitability of the Dutch disease and also because the debate on whether or not Botswana has avoided the Dutch disease is far less settled than is indicated by its economic growth record. Botswana currently suffers from many of the symptoms of the Dutch disease but not for the causal reasons posited in the Dutch disease model. Indeed, many of the explanations for the lack of diversification found in Botswana’s mineral-dependent economy have nothing to do with either diamond revenues or the Dutch disease. Botswana has done about as well managing its resource wealth as could realistically be expected but it is unlikely to succeed in diversifying its economy away from diamonds anytime soon. & 2009 Elsevier Ltd. All rights reserved.
JEL classification: Q32 Q33 Q38 Keywords: Botswana Dutch disease Diamonds Resource curse Revenue management
Introduction Botswana’s economic growth and political stability are regularly celebrated in the academic literature. Books have been written explaining why the country prospered (Leith, 2005); it has been described as ‘‘an African Miracle’’ (Samatar, 1999); and a World Bank study argued that ‘‘Botswana illustrates how a natural resource curse is not necessarily the fate of all resource abundant countriesy’’ (Sarraf and Jiwanji, 2001, p. 17). Given that Botswana’s per capita GDP growth, which averaged more than 9% from 1966 to 1999, was the highest in the world over that period of time (Leith, 2005, pp. 4–5), it might seem superfluous at first glance to ask whether or not there is a Dutch disease in Botswana. Beyond Botswana’s impressive economic growth, there are a variety of problems with the Dutch disease idea. The Dutch disease model may not be a good fit for many resource-rich developing countries. While the model assumes fixed and fully employed capital and labor supplies before the resource-led boom begins, Ross (1999, p. 306) notes that developing countries ‘‘often have labor surpluses, and their resource booms draw in foreign capital and labor, offsetting any local scarcities.’’ Other scholars
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doubt that Dutch disease provides an adequate explanation for the various economic problems found in specific resource-rich countries. Sala-i-Martin and Subramanian (2003, pp. 16–17), for example, highlight numerous reasons why Dutch disease does not explain the assorted economic failures of oil-rich Nigeria. Some scholars (Davis, 1995; Iimi, 2006a) also fail to find evidence supporting the detrimental effects of a Dutch disease in large-N studies comparing the economic performance of resource-rich developing countries to developing countries as a whole. Following the pioneering work of van Wijnbergen (1984), others fundamentally question the whole premise of the Dutch disease as a problem. Davis and Tilton (2005, p. 238) maintain that ‘‘the Dutch disease actually allows a country to benefit from its new found mineral wealth by encouraging resources to flow from other sectors of the economy to the booming sector.’’ Yet, the Dutch disease is still evoked in the resource curse literature. Although increasingly eclipsed in popularity by institutionally based explanations, the crowding-out economic logic of the Dutch disease remains a frequent explanation for the poor economic performance seen in many resource-rich countries. Botswana merits study here both as a significant potential exception to the Dutch disease and also because the debate on whether or not Botswana has avoided the Dutch disease is far less settled than it initially appears. Although distinct, the terms ‘‘Dutch disease’’ and ‘‘resource curse’’ are ‘‘frequently thought to be synonymous’’ (Davis, 1995, p.
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1768). As used here, Dutch disease is a much narrower term than the resource curse. At least five different dimensions are highlighted in the resource curse literature. First, resource-rich countries are alleged to not invest adequately in education (Gylfason, 2001; challenged by Stijns, 2006). Second, resourcerich countries are subject to increased risks for civil war (Collier and Hoeffler, 2000; Ross, 2004). Third, resource-rich countries have difficulties in establishing or consolidating democratic forms of governance (Ross, 2001; Jensen and Wantchekon, 2004). Fourth, resource wealth is believed to lead to increased corruption and have corrosive effects on the quality of institutions (Leite and Weidmann, 1999; partially challenged by Petermann et al., 2007). Finally, oil and mineral-rich states are seen as susceptible to the Dutch disease and other ailments which ultimately produce slow or negative economic growth (Sachs and Warner, 1995; Sachs and Warner, 2001; challenged by Davis, 1995 and Stijns, 2005). This article is solely concerned with the Dutch disease and does not address other strands of the resource curse literature. After first reviewing the basics of the Dutch disease model, the article highlights some of the different positions previously advanced on whether or not Botswana has experienced a Dutch disease. My argument is that Botswana currently suffers from many of the symptoms of the Dutch disease but not for the causal reasons posited in the Dutch disease model.
The Dutch disease The phrase ‘‘Dutch disease’’ was coined by The Economist in 1976 to explain the negative effects that North Sea oil and gas revenues had on Dutch industrial production. In essence, the Dutch disease simply denotes an economy that features ‘‘the coexistence within the traded goods sector of progressing and declining, or booming and lagging, sub-sectors’’ (Corden and Neary, 1982, p. 825). As it is generally applied in cases where the booming sector is resource extractive and the lagging sectors are manufacturing and agriculture, the Dutch disease results from the hard currency inflows associated with surging resource exports leading to an appreciation of the real exchange rate. This coincides with a sectoral reallocation of economic resources. Capital and labor are drawn away from agriculture and manufacturing and they flow into the extractive sector. The prices of non-tradable goods such as construction and many other services also rise. The end result is higher costs and reduced competitiveness in the tradable agricultural and manufacturing sectors which face competitive international prices for their goods. Natural resource booms, in effect, crowd out other important sectors of the economy and render them uncompetitive. This results in countries with resource-dependent economies that are heavily exposed to the inherent volatility of commodity prices (Davis and Tilton, 2005, p. 236; Leite and Weidmann, 1999, pp. 8–9; Mogotsi, ¨ 2002, p. 132; Norberg and Blomstrom, 1993, p. 163). The Dutch disease operates through two distinct channels: the resource movement effect and the spending effect (Corden and Neary, 1982, p. 827). The resource movement effect occurs when the booming extractives sector draws capital and labor away from other sectors. As explained by Davis and Tilton (2005, p. 236), ‘‘Typically, domestic wage rates rise as the booming mineral sector is forced to offer workers higher salaries to attract the labor it needs.’’ This typically produces other adjustments in the economy including rising real exchange rates and increased wages and prices in the non-tradable sector which then draws additional labor from the lagging tradable sectors (Corden and Neary, 1982, ¨ p. 827; Norberg and Blomstrom, 1993, p. 163). The spending effect occurs when the extra income derived from booming resource rents is spent on domestic goods and services. More formally ‘‘the
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higher real income resulting from the boom leads to extra spending on services which raises their pricey’’ (Corden and Neary, 1982, p. 827). A further complication that is not technically part of the Dutch disease arises with commodity price volatility. Many governments that increase spending when prices are high are unable to cut expenditures when prices decline and find themselves incurring significant debt in order to maintain spending at boom levels. Botswana has been fortunate here in that diamond revenues are more stable than oil revenues. Indeed, the stability of rent streams is seen as a key explanatory variable accounting for much of Botswana’s revenue management success (Auty, 2001, p. 80 and 85; Hill and Knight, 1999, p. 313). This is certainly correct but shifts of plus or minus 15% of revenues are fairly typical in Botswana (Gabonowe, interview) and the country has sometimes been forced to reduce output and produce below capacity even if prices have remained stable (Jefferis, interview). Indeed, in response to the current economic downturn and a desire to avoid stockpiling surplus diamonds as it had to do in the early 1980s (Hill and Knight, 1999, pp. 307–310), Debswana shut all of its diamond mines in December 2008. Three of the mines (Jwaneng, Leithakane and Orapa No. 1) resumed production in mid-April 2009 but two (Damtshaa and Orapa No. 2) will remain closed throughout 2009. Debswana is expected to produce 13 million carats in 2009 which is less than half of the 32.3 million carats it produced in 2008 (De Beers Group, 2009). Compared to other commodity producers, Botswana benefits from a relatively stable rent stream but it has not been immune to periodic revenue volatility.
Diverse views on Botswana and the Dutch disease The argument that Botswana has not suffered from the Dutch disease is regularly advanced. A recent IMF study, for example, argued that ‘‘Botswana has benefited from the coexistence of good governance and abundant diamonds to materialize growth. No clear evidence can be found that deterioration in the terms of trade would negatively affect economic development, as the Dutch disease model would hypothesize’’ (Iimi, 2006a, p. 24). ¨ (1993) similarly find limited evidence of Norberg and Blomstrom either a resource movement effect or a spending effect in Botswana. The resource movement effect is sharply limited by virtue of the capital-intensive nature of diamond mining which results in an industry that only employs about 8000 people in total (IMF, 2007, p. 63). The spending effect has been limited for two main reasons. First, a large percentage of goods consumed domestically in Botswana are imported from South Africa, thus reducing the effects on the non-tradable sector. In recent years, ‘‘half of all goods and materials traded in Botswana are imported with three-quarters of them coming from South Africa’’ (IMF, ¨ (1993, p. 176) argue 2007, p. 40). Second, Norberg and Blomstrom that ‘‘revenues from the diamond industry have been kept in foreign capital markets rather than invested or consumed at home and this policy has largely reduced the spending effect.’’ Thus they find little evidence that agriculture or manufacturing in Botswana has suffered from Dutch disease effects. Finally, even one of the most critical observers of Botswana’s economic performance maintains that ‘‘It is agreed that Botswana does not suffer from Dutch disease, although all the typical pre-conditions are present’’ (Hillbom, 2008, p. 202). Moving somewhat away from this viewpoint is Mogotsi (2002, p. 129) who argues that Botswana has suffered from ‘‘a mild form’’ of the Dutch disease. Two reasons for the mild form of the disease are that Botswana had high unemployment at the start of its mineral boom and it did not have a large pre-existing manufac-
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turing sector. In Mogotsi’s view, the resource movement effect led to skilled labor migrating to the mining sector and being replaced by less skilled, previously unemployed agricultural workers. There was no reduction in overall manufacturing employment but ‘‘the lower skilled manpower is less productive, and causes a decline in the output of the sector’’ (Mogotsi, 2002, p. 138). In terms of the spending effect, Mogotsi argues that the core of the diamond boom from 1982 to 1987 saw both major spending increases and a significant appreciation of the real exchange rate. The real exchange rate depreciated after the initial boom but government recurrent spending did not (Mogotsi, 2002, pp. 144–146). To date, the effects of this have been modest as diamond revenues have remained high. Mogotsi fears that should these revenues ever decline, ‘‘the situation may be similar to that of other countries which enjoyed booms in the past, resulting in busts later, due to Dutch disease phenomena’’ (Mogotsi, 2002, p. 154). Love (1994) focuses on agriculture. While conceding that the direct resource movement effect from agriculture to mining was limited, Love argues that the diamond boom adversely affected agriculture through a rise in the pula’s value against the South African rand (Love, 1994, pp. 73–75). For Love, this means that recurrent drought is a marginal part of the explanation for Botswana’s agricultural decline. Instead, in explaining Botswana’s agricultural decline, Love contends that ‘‘the effects of the booming minerals sector on exchange rates and in permitting rapid growth of discretionary government spending have been of prime importance’’ (Love, 1994, p. 79). Perhaps the most prominent voice in Botswana today associated with the view that the country is suffering from the Dutch disease is Derek Hudson, a former Deputy Director of the Bank of Botswana. Hudson (2004b) starts by noting that ‘‘Botswana is getting most things right.’’ In this regard, he observes that ‘‘Botswana is well known for a stable government, a high international credit rating, relatively low income taxes, no exchange controls, a relatively low rate of corruption, relatively good telecommunications, a good banking system, excellent roads, and so ony’’ (Hudson, 2004b). He then asks why Botswana has had so little success diversifying its economy and why foreign direct investment outside of the diamond industry is largely bypassing the country (Hudson, 2004a; personal interview). Fundamentally, his concern is that ‘‘if we are so virtuous with respect to non-currency issues, why is it so difficult to create jobs in Botswana? What are we doing wrong?’’ (Hudson, 2004b). The explanation Hudson offers is that the country is suffering from the Dutch disease and that this is reflected both in an overvalued currency and in high wages. Hudson sees Botswana’s Dutch disease as reflecting the voting power of the elite. Formal-sector workers and trade unions combine to form a powerful political block favoring a strong currency to combat inflation. The result of a Dutch disease-induced overvalued currency and high wages is that Botswana’s non-diamond exports are internationally uncompetitive and the country is unable to diversify its economy (Hudson, personal interview).
Is there a Dutch disease in Botswana? The argument advanced here is that although Botswana has grown rapidly and for the most part, invested its mineral revenues wisely in education, health, roads and basic infrastructure, the country’s economy remains largely undiversified or more positively phrased, highly specialized. Yet, this is not the result of classic Dutch disease reasons. There has not been a significant resource movement effect in Botswana. Mining and quarrying accounted for only 3.1% of total formal-sector employment in Botswana in 2004 (IMF, 2007, p. 26). In recent years, mining and
quarrying employment in Botswana has ranged from a low of 6982 persons in 2001/02 to a high of 9705 persons in 2004/05 with a five-year average over that period of 8089 (IMF, 2007, p. 63). As a capital-intensive sector, mining requires relatively few employees, thus minimizing the resource movement effect. By way of illustration, mining accounted, on average, for 35.64% of Botswana’s GDP from fiscal year 2000/01–2004/05 while employing just over 8000 workers. By contrast, the manufacturing sector accounted for just 4.16% of GDP over the same period, yet employed more than 30,000 workers (IMF, 2007, p. 58 and 63). Beyond this, the Dutch disease model assumes full employment whereas Botswana has a large labor surplus. Mogotsi (2002) might be correct that the limited resource movement effect resulting from small numbers of skilled laborers being drawn into the mining and non-tradable sectors of the economy as the Dutch disease model predicts led to lower manufacturing productivity, but the overall impact of the resource movement effect in Botswana was minimal. If we are to find significant Dutch disease effects in Botswana, then we must look for them in terms of the spending effect. Mogotsi (2002, pp. 145–6) argues that Botswana saw both significant appreciation in its exchange rate and big spending increases during the core of its diamond boom from 1982 to 1987. She concludes that ‘‘Botswana seems to have experienced a Dutch disease, with significant spending effects, in respect of both government recurrent and household consumption spending’’ (2002, p. 148). While there is no doubt that Botswana’s spending on things like education and infrastructure is much higher than it would be in the absence of diamond rents, the spending effect is where Botswana has had its greatest success in mitigating the Dutch disease. The fundamental principle of Botswana’s approach for more than three decades has been that non-renewable resource revenues should only be used for investment or capital expenditures (defined as development expenditure and recurrent spending on education and health) and that recurrent spending must come from non-mineral revenues (Hermans, interview; Iimi, 2006a, p. 10; Jefferis, interview; Sharp, interview). To facilitate this, a separate Development Fund was created which can only spend money on projects approved in the country’s National Development Plan (NDP). The NDP determines Botswana’s spending priorities over a five-year cycle and projects cannot get funded unless they are incorporated into the NDP. In order to get into the NDP, a project must be vetted by the Ministry of Finance and Development Planning (MFDP) which is responsible for coordinating all development activities and setting spending limits. When things work in practice as they are designed to do in theory, the MFDP evaluates all projects in terms of their economic viability to prevent unviable pet projects from getting funded. Although detailed cost-benefit analyses are not carried out for some projects and a gap exists between MFDP rhetoric and reality on the rigorous evaluation process, this system has largely been driven by technical expertise and not political considerations (Jefferis, interview; Samatar, 1999, p. 94; Sharp, interview). This system of financial controls limits executive discretion and the prospects for ad-hoc financing outside of the NDP (Leith, 2005, p. 58; Sarraf and Jiwanji, 2001, p. 12). In addition to the Development Fund, Botswana also created two other special funds to help manage its mineral revenues. Recognizing that its diamond revenues would exceed its absorptive capacity, the government established a Public Debt Service Fund in 1972 to enable it to save money rather than contribute to economic overheating by spending it. The government thus chose to keep expenditure growth below the rate of revenue growth. To address the volatility of mineral revenues, Botswana established the Revenue Stabilization Fund in 1972 to accumulate reserves during booms that could later be used to cushion downturns. This
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meant that increases in diamond revenues did not necessarily lead to new spending while decreases in diamond revenues did not lead to sharp cutbacks (Hermans, interview; Jefferis, interview; Leith, 2005, pp. 106–108; Sarraf and Jiwanji, 2001, pp. 10–13). At the end of 2006, Botswana’s current account surpluses had allowed the government to accumulate a significant stock of reserves, amounting to about 75% of GDP (Dele chat and Gaertner, 2008, p. 5). Yet, in terms of diversification, the mining sector accounted for 35% of GDP in 2005, a figure that had not changed significantly for more than a decade. Diamonds still account for 75% of exports (IMF, 2007, pp. 20–22). While mining grew at an average annual rate of 5.1% between fiscal years 1994/95 and 2003/04 and government grew at an average annual rate of 6.2%, ‘‘Growth in other sectors has been minimal; it in fact decelerated from an annual average of 7% from 1984/85 to 1993/94 to about 1% in the following decade’’ (IMF, 2007, p. 22). Agriculture, which was growing by 8.3% per year in the 1970s before the onset of significant diamond production, actually declined by 1.2% per year in the 1990s (Good, 2005, p. 28; Sarraf and Jiwanji, 2001, p. 15). Agriculture fell from about 10% of GDP in 1981 to about 2% in 2004/05 (IMF, 2007, p. 22). Although agriculture may now be stable in absolute terms, it continues to decline as a share of GDP (Jefferis, interview; Sharp, interview). Manufacturing persists at around 4–5% of GDP (Leith, 2005, pp. 100–101). Given Botswana’s growing economy, this implies an absolute expansion of the manufacturing sector even if its relative share of the overall economy has remained stable or declined moderately. One observer sums up the overall situation here by noting that ‘‘Botswana’s contemporary economy is thus not substantially more diversified than was the case at independence. The government’s efforts to diversify have failed.’’ (Hillbom, 2008, p. 196). Although Botswana’s currency is undoubtedly stronger than it would be in the absence of diamond revenues, currency appreciation does not appear to be a consistent contributor to these Dutch disease-like effects. The pula appreciated by more than 20% against the South African rand during the 1980s and Love (1994, pp. 74–75) argues that this had much to do with the decline in Botswana’s agricultural sector. Mogotsi (2002, p. 144) similarly argues that the pula appreciated significantly during what she terms the core of Botswana’s boom from 1982 to 1987. At the same time, though, while the currency was appreciating against the rand, it also depreciated by far more against the US dollar and European currencies. According to an IMF study, before Botswana’s currency devaluation in February 2004, the pula had appreciated by more than 20% against the rand as compared to the exchange rate level in 1980. During this same period, however, the pula had depreciated by about 80% against the US dollar and by about 65% against the Euro (Iimi, 2006b, p. 5). Botswana faces difficult exchange rate management decisions. South Africa accounts for approximately 75% of Botswana’s total imports which are priced in rand (Iimi, 2006b, p. 18; IMF, 2007, p. 40) while diamonds which are priced in US dollars have accounted for nearly 80% of total export revenues over the six-year period from 2000 to 2005 (IMF, 2007, p. 85). As Clark Leith (2005, p. 78) has pointed out, ‘‘The authorities could choose to have the pula follow the US dollar, the South African rand or some combination of the two. But, given the movement of the rand/dollar exchange rate, it was not possible for the pula to remain stable against both the rand and the dollar.’’ Botswana’s currency has appreciated in value at various times since significant diamond revenues arrived but its appreciation has by no means been steady or consistent. Botswana’s real effective exchange rate (REER) is estimated to have depreciated by about 15% in the 1980s, mainly reflecting the pula’s fall in value
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against the US dollar and major European currencies (Iimi, 2006b, p. 9). The pula is generally seen as not being significantly over- or undervalued throughout the 1990s (Dele chat and Gaertner, 2008, p. 6 and 12; Iimi, 2006b, p. 19). It did appreciate in value sharply from 2000 to 2004, resulting in the currency being overvalued by an estimated 5–10% (Iimi, 2006b, p. 19). This short-term appreciation was, however, largely corrected when the country devalued the pula in 2004 and again in 2005 and switched to a crawling-peg exchange rate regime (Dele chat and Gaertner, 2008, p. 12). Two different IMF studies have recently concluded that Botswana’s currency has not been significantly or consistently overvalued. According to Iimi (2006b, p. 22), ‘‘the Botswana pula seems to have been undervalued in the late 1980s and overvalued by 5–10% in recent years [before the devaluations in 2004 and 2005], though the misalignment in the 1990s seems to have been very marginal.’’ Dele chat and Gaertner (2008, p. 21) similarly find that the overvaluation of the early years of this decade was corrected by the 2004–2005 devaluations and that ‘‘Botswana’s REER is broadly in line with economic fundamentals and consistent with external sustainabilityy.’’ Although the IMF frequently finds that exchange rates are not overvalued in many of the countries it studies, Botswana’s successful exchange rate management is also widely noted by other scholars. Hill (1991, p. 1189), for example, maintains that ‘‘By all measures, real exchange rate appreciations of significant size or duration have been avoided’’ (see also Hill and Knight, 1999. pp. 336–337) while Hjort (2006, p. 187) concludes that exchange rate management and the introduction of the crawling peg in Botswana ‘‘must be seen as a success.’’ In short, the pula has occasionally been overvalued against the dollar or the rand but it is not accurate to claim that Botswana’s currency has been consistently overvalued since diamond revenues arrived or that these short-term appreciations can explain the country’s long-term failure to diversify its economy over a period of decades. Botswana has arguably avoided Dutch disease through the exchange rate, only to see the problem emerge in other ways. The channel has not come through appreciation of nominal exchange rates but through wages and their relation to productivity (Jefferis, interview). Given its small number of employees, if high wages were confined to just direct employees in the diamond industry, this would not be a major problem. Unfortunately, high wages have extended far beyond the mining sector to encompass the entire government sector (Hudson, interview). Arguably, this has been a deliberate policy to spread some of the benefits of mineral wealth to what otherwise might become a growing class of unemployed university graduates. In 2005, 42% of Botswana’s formal-sector workers were employed by the government with their average wage exceeding those offered in the private sector by over 40% (IMF, 2007, p. 25). Government pay scales are more compressed than in the private sector—higher at the lower end and lower at the higher end. The government has thus been a wage leader at the lower end and contributed significantly towards making Botswana a relatively high cost economy (Jefferis, interview). The net effect of a large high-wage government sector has been to increase the reservation wage that workers demand before accepting employment (IMF, 2007, p. 28). Botswana’s fundamental problem is not an overvalued exchange rate. Rather, it is an uncompetitive relationship between wage rates and labor productivity. This pattern diverges from the channels typically identified in the Dutch disease literature. As Leith notes, ‘‘The crowding out of private formal-sector employment via the more rapid growth of government wages and salaries stands in contrast to the crowding-out mechanisms typically found elsewhere: exchange rate overvaluation and high real interest rates. On the whole, these were avoided in Botswana’’ (2005, p. 91). There are also alternative explanations for Botswana’s small agricultural and manufacturing sectors. Only 4% of Botswana’s land is suitable for arable agriculture and the country’s arid
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climate does not offer it much comparative advantage in agriculture outside of cattle production. Agriculture suffers from recurrent drought as well as government policies that strongly favor large cattle owners over small peasant producers (Good, 1999, pp. 190–1; Hillbom, 2008, p. 209; Love, 1994, pp. 79–80; Meisenhelder, 1994, pp. 40–45). In contrast to Indonesia which devoted significant portions of its resource wealth to agricultural development (Lewis, 2007, p. 111), Botswana did not. From fiscal years 2000/01 through 2006/07, Botswana spent an average of 9.19% of its GDP on education. During that same period of time, it spent an average of 3.46% of GDP on health and 3.26% of GDP on defense but only 1.4% of GDP on agriculture, forestry and fishing (IMF, 2007, p. 72). This neglect is particularly surprising given that agriculture accounts for 70% of the labor force (Sarraf and Jiwanji, 2001, p. 15). Agriculture in Botswana has not suffered due to a resource movement effect into the extractive sector or because of an overvalued exchange rate. It has suffered from a lack of government investment at least outside of support for large scale cattle owners. In this regard, Timmer (2007, p. 30) characterizes Indonesia’s significant investments in rural infrastructure as ‘‘doubly pro-poor’’ because they led to rapid growth with an improving income distribution and because they were deliberately targeted at the poor with an emphasis on labor-intensive investments. He goes on to note that ‘‘Roughly two-thirds of the reduction [in poverty] observed during the period of fastest growth in manufactured exports was due to growth in agricultural output at the provincial level’’ (Timmer, 2007, pp. 46–47). Botswana’s failure to pursue such an agriculturally-based strategy contributed to some of the Dutch disease-like effects seen in the country today but its problems in agriculture are not attributable to the Dutch disease. Manufacturing is held back by a number of problems that have nothing to do with diamond revenues. These include Botswana’s tiny domestic market, landlocked location, high transportation costs and lack of entrepreneurs. Sound macro-economic policy frameworks have been widely praised but micro-economic policy frameworks have often assumed the existence of entrepreneurs who were not there (Siphambe, interview). The high cost of providing utilities to a country the size of France with less than 2,000,000 people makes Botswana’s costs uncompetitive (Freeman, interview). As examples, electricity costs of US$0.10 kWh-1 in Botswana compare to $0.06 in South Africa, $0.05 in Zimbabwe and $0.04 in Mozambique and Namibia while water costs of $1.02 m-3 in Botswana compare to $0.67 in Namibia, $0.35 in Mozambique, $0.34 in Zimbabwe and $0.30 in South Africa (Dele chat and Gaertner, 2008, p. 19). High levels of income inequality further reduce the attractiveness of Botswana’s limited domestic market of 1.7 million people as approximately half the population has extremely limited purchasing power (Tsie, interview). The manufacturing investments that the government has been able to attract with generous incentives have mainly brought footloose companies that rapidly shut down facilities and relocate production as soon as the incentives expire (Good and Hughes, 2002, p. 43; Leith, 2005, p. 99; Samatar, 1999, p. 155). The muchtouted prospects for diversification into tourism have run into environmental constraints, particularly given that many people come to Botswana to avoid a mass tourist experience (Freeman, interview; Hermans, interview). Finally, the country’s proximity to South Africa greatly impedes its ability to promote manufacturing. Gaborone is closer to Johannesburg than any other South African city except Pretoria. Botswana’s simultaneous blessing and curse is that it is, in effect, almost another province of South Africa. The blessing is the incredibly wide range of goods on offer while the curse is that almost all of them come from South Africa. Botswana’s dearth of manufacturing facilities is, in this sense, no different from that
found in outlying South African provinces like Northern Cape or Eastern Cape (Sharp, interview). Even one of the country’s most sympathetic observers notes that ‘‘Botswana’s integration as a Bantustan into the South African economy has significantly hampered Botswana’s industrial development efforts’’ (Samatar, 1999, p. 131). Less colorfully, the IMF points out that ‘‘it may be cheaper for Botswana to import from South Africa than to manufacture goods domestically’’ (2007, p. 27). Beyond this, South Africa actively contests Botswana’s attempts to attract foreign direct investment in manufacturing by using its membership in the South African Customs Union to export from Botswana to the South African market. After Hyundai established a car manufacturing plant in Botswana, the South African government disputed rules of origin, the collection of customs duties and placed numerous non-tariff barriers in the way of Botswana’s ostensible ability to export duty-free to South Africa (Good and Hughes, 2002, pp. 51–58; Masire, 2006, pp. 179–80; Tsie, interview).
Conclusion In spite of its sustained rapid economic growth, Botswana suffers many of the symptoms of Dutch disease but not due to the causal mechanisms identified in the Dutch disease literature. There has been little resource movement effect to speak of and the country has aggressively worked to counteract the spending effect through sound macro-economic policies and extremely prudent fiscal policies which have led to the accrual of significant savings. Such savings will undoubtedly allow Botswana to minimize the deleterious effects of losing half its diamond production in 2009, much as the country successfully managed the loss of diamond sales and revenues in the early 1980s (Hill and Knight, 1999, pp. 339–341). Botswana’s currency is stronger than it would be in the absence of diamond revenues and it has occasionally been overvalued. Such overvaluations have, however, been sporadic and they cannot explain the country’s persistent failure to diversify its economy. Rather than an overvalued exchange rate, whatever Dutch disease effects there are have shown up through wages and their relationship to labor productivity. The problem in Botswana in this regard is not a resource movement effect towards the mining sector but rather one towards the much larger government sector with its generous wage leadership. Yet, many of the explanations for Botswana’s mineral-dependent economy have nothing to do with either diamond revenues or the Dutch disease. With or without diamonds, Botswana would struggle to overcome such conditions as being a landlocked country prone to recurrent drought with a small population that lives in the shadow of a regional hegemon that aggressively pursues its own self-interest. None of this is to argue that resource wealth has been a curse for Botswana. Indeed, the generally wise use of its diamond revenues has ensured that Botswana faces these larger challenges with a much better educated population, significant savings and a much greater base of high-quality installed infrastructure than it otherwise would have. Theoretically, this study lends support to the argument advanced by Davis (1995) that the Dutch disease should not be seen as a temporary affliction. As he explains, when mineral booms are of long duration (Botswana’s is now in its fourth decade), ‘‘the Dutch disease merely describes the transformation of the economy from one long-run equilibrium to another’’ (Davis, 1995, p, 1768). Of the 23 countries identified in his study as mineral-dependent in 1970, only one of them, Tunisia, was not so classified in 1991 despite probable attempts by many of the other countries to diversify their economies. Davis concludes from this that ‘‘mineral endowment-related comparative advantages are
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very slow to change, and that it is difficult if not impossible to force diversification of a resource-related economy contrary to comparative advantage’’ (Davis, 1995, p. 1772). Botswana’s experience clearly supports this argument. One can easily identify alternative policies that might have been pursued in Botswana that could have made a marginal difference towards promoting diversification. For example, the country could have invested more of its resource wealth in arable agriculture or small cattle holders and it could have better designed and monitored its incentives to attract long-term foreign direct investment in manufacturing. Such policies would not, however, do much to overturn Davis’s basic insight about the long-term durability of resource-related economies. Botswana has done about as well managing its resource wealth as could realistically be expected. The country does not suffer from a classic Dutch disease. It is, however, unlikely to succeed in diversifying its economy away from diamonds anytime soon.
Acknowledgments I gratefully acknowledge summer research funding from the IUPUI School of Liberal Arts which made my fieldwork in Botswana possible. Thanks to all those who were kind enough to share their thoughts with me in personal interviews. Ken Good graciously invited me to Botswana shortly before he was summarily deported from the country. Steve Marr and Ian Taylor also helped me immensely in Botswana. I would also like to acknowledge the very helpful comments of two anonymous referees. References Auty, R.M., 2001. The political state and the management of mineral rents in capital-surplus economies: Botswana and Saudi Arabia. Resources Policy 27 (2), 77–86. Collier, P., Hoeffler, A., 2000. Greed and grievance in civil war. World Bank Policy Research Working Paper 2355. The World Bank Development Research Group, Washington, DC. Corden, W.M., Neary, J.P., 1982. Booming sector and de-industrialization in a small open economy. The Economic Journal 92 (368), 825–848. Davis, G.A., 1995. Learning to love the Dutch disease: evidence from the mineral economies. World Development 23 (10), 1765–1779. Davis, G.A., Tilton, J.E., 2005. The resource curse. Natural Resources Forum 29 (3), 233–242. De Beers Group, 2009. Debswana mines set to re-open, April 14. Dele chat, C., Gaertner, M., 2008. Exchange rate assessment in a resourcedependent economy: The Case of Botswana. IMF Working Paper WP/08/83. International Monetary Fund, Washington, DC. Good, K., 1999. The state and extreme poverty in Botswana: the san and destitutes. Journal of Modern African Studies 37 (2), 189–205. Good, K., 2005. Resource dependency and its consequences: the costs of Botswana’s shining gems. Journal of Contemporary African Studies 23 (1), 27–50. Good, K., Hughes, S., 2002. Globalization and diversification: two cases in Southern Africa. African Affairs 101 (402), 39–59. Gylfason, T., 2001. Natural resources, education and economic development. European Economic Review 45 (4–6), 847–859. Hill, C.B., 1991. Managing commodity booms in Botswana. World Development 19 (9), 1185–1196. Hill, C., Knight, J., 1999. The diamond boom, expectations and economic management in Botswana. In: Collier, P., Gunning, J.W. (Eds.), Trade Shocks in Developing Countries, vol. I: Africa. Oxford University Press, Oxford. Hillbom, E., 2008. Diamonds or development? A structural assessment of Botswana’s forty years of success. Journal of Modern African Studies 46 (2), 191–214. Hjort, J., 2006. Citizen funds and Dutch disease in developing countries. Resources Policy 31 (3), 183–191. Hudson, D., 2004a. Is the Pula still overvalued? Part I. Mmegi, June 25, B9. Hudson, D., 2004b. Is the Pula still overvalued? Part II. Mmegi, July 2, B6.
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Iimi, A., 2006a. Did Botswana escape from the resource curse? IMF Working Paper WP/06/138. International Monetary Fund, Washington, DC. Iimi, A., 2006b. Exchange rate misalignment: an application of the behavioral equilibrium exchange rate (BEER) to Botswana. IMF Working Paper WP/06/140. International Monetary Fund, Washington, DC. International Monetary Fund, 2007. Botswana: selected issues and statistical appendix. IMF Country Report No. 07/228. International Monetary Fund, Washington, DC. Jensen, N., Wantchekon, L., 2004. Resource wealth and political regimes in Africa. Comparative Political Studies 37 (7), 816–841. Leite, C., Weidmann, J., 1999. Does mother nature corrupt? Natural resources, corruption, and economic growth. IMF Working Paper WP/99/85. International Monetary Fund, Washington, DC. Leith, J.C., 2005. Why Botswana Prospered. McGill-Queen’s University Press, Montreal and Kingston. Lewis, P.M., 2007. Growing Apart: Oil, Politics, and Economic Change in Indonesia and Nigeria. University of Michigan Press, Ann Arbor. Love, R., 1994. Drought, Dutch disease and controlled transition in Botswana agriculture. Journal of Southern African Studies 20 (1), 71–83. Masire, Q.K.J., 2006. Very Brave or Very Foolish? Memoirs of an African Democrat. Macmillan Botswana Publishing Company, Gaborone. Meisenhelder, T., 1994. Bonanza and dependency in Botswana. Studies in Comparative International Development 29 (1), 38–49. Mogotsi, I., 2002. Botswana’s diamonds boom: was there a Dutch disease?. South African Journal of Economics 70 (1), 128–155. ¨ Norberg, H., Blomstrom, M., 1993. Dutch disease and management of windfall ¨ gains in Botswana. In: Blomstrom, M., Lundahl, M. (Eds.), Economic Crisis in Africa: Perspectives on Policy Responses. Routledge, London. Petermann, A., Guzman, J.I., Tilton, J.E., 2007. Mining and corruption. Resources Policy 32 (3), 91–103. Ross, M.L., 1999. The political economy of the resource curse. World Politics 51 (2), 297–322. Ross, M.L., 2001. Does oil hinder democracy?. World Politics 53 (3), 325–361. Ross, M.L., 2004. What do we know about natural resources and civil war?. Journal of Peace Research 41 (3), 337–356. Sachs, J.D., Warner, A.M., 1995. Natural resource abundance and economic growth. Development Discussion Paper No. 517a. Harvard Institute for International Development, Cambridge. Sachs, J.D., Warner, A.M., 2001. The curse of natural resources. European Economic Review 45 (4–6), 827–838. Sala-i-Martin, X., Subramanian, A., 2003. Addressing the natural resource curse: an illustration from Nigeria. IMF Working Paper WP/03/139. International Monetary Fund, Washington, DC. Samatar, A.I., 1999. An African Miracle: State and Class Leadership and Colonial Legacy in Botswana Development. Heinemann, Portsmouth, NH. Sarraf, M., Jiwanji, M., 2001. Beating the resource curse: the case of Botswana. Environment Department Working Paper # 83, Report # 24753. The World Bank Environment Department, Washington, DC. Stijns, J-P., 2005. Natural resource abundance and economic growth revisited. Resources Policy 30 (2), 107–130. Stijns, J.-P., 2006. Natural resource abundance and human capital accumulation. World Development 34 (6), 1060–1083. Timmer, C.P., 2007. How Indonesia connected the poor to rapid economic growth. In: Besler, T., Cord, L.J. (Eds.), Delivering on the Promise of Pro-Poor Growth: Insights and Lessons from Country Experiences. The World Bank Washington, DC. van Wijnbergen, S., 1984. The ‘‘Dutch disease’’: a disease after all?. The Economic Journal 94 (1), 41–55.
Interviews Freeman, Peter, Economic Consultant, Ministry of Minerals, Energy and Water Affairs, Gaborone, 16 July 2004. Gabonowe, Ribson, Director of Mines, Department of Mines, Gaborone, 9 July 2004. Hermans, Quill, former Permanent Secretary at the Ministry of Finance and Development Planning and first governor of the Bank of Botswana, Gaborone, 9 July 2004. Hudson, Derek, former Director, Central Statistics Office and former Deputy Director, Bank of Botswana, Gaborone, 30 June 2004. Jefferis, Keith, Deputy Director, Bank of Botswana, Gaborone, 2 July 2004. Leith, J. Clark, Economic Consultant, Ministry of Finance and Development Planning Gaborone, 5 July 2004. Sharp, Chris, Managing Director, Economic Consultancies (PTY) Ltd., Gaborone, 15 July 2004. Siphambe, Happy, Department of Economics, University of Botswana, Gaborone, 16 July 2004. Tsie, Balefi, Dean, 2004. Faculty of Social Sciences. University of Botswana, Gaborone 7 July 2004.
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Is there a Dutch disease in Botswana? Scott Pegg Department of Political Science, Indiana University Purdue University Indianapolis (IUPUI), 425 University Boulevard, Indianapolis, IN 46202-5140, USA
a r t i c l e in f o
a b s t r a c t
Article history: Received 10 July 2008 Received in revised form 20 July 2009 Accepted 22 July 2009
The Dutch disease is regularly evoked in the resource curse literature and remains a frequent explanation for the poor economic performance found in many resource-rich countries. Given Botswana’s high rate of per capita GDP growth, it might seem superfluous at first glance to ask whether or not there is a Dutch disease in Botswana. Yet, Botswana merits study here both as a significant potential exception to any posited inevitability of the Dutch disease and also because the debate on whether or not Botswana has avoided the Dutch disease is far less settled than is indicated by its economic growth record. Botswana currently suffers from many of the symptoms of the Dutch disease but not for the causal reasons posited in the Dutch disease model. Indeed, many of the explanations for the lack of diversification found in Botswana’s mineral-dependent economy have nothing to do with either diamond revenues or the Dutch disease. Botswana has done about as well managing its resource wealth as could realistically be expected but it is unlikely to succeed in diversifying its economy away from diamonds anytime soon. & 2009 Elsevier Ltd. All rights reserved.
JEL classification: Q32 Q33 Q38 Keywords: Botswana Dutch disease Diamonds Resource curse Revenue management
Introduction Botswana’s economic growth and political stability are regularly celebrated in the academic literature. Books have been written explaining why the country prospered (Leith, 2005); it has been described as ‘‘an African Miracle’’ (Samatar, 1999); and a World Bank study argued that ‘‘Botswana illustrates how a natural resource curse is not necessarily the fate of all resource abundant countriesy’’ (Sarraf and Jiwanji, 2001, p. 17). Given that Botswana’s per capita GDP growth, which averaged more than 9% from 1966 to 1999, was the highest in the world over that period of time (Leith, 2005, pp. 4–5), it might seem superfluous at first glance to ask whether or not there is a Dutch disease in Botswana. Beyond Botswana’s impressive economic growth, there are a variety of problems with the Dutch disease idea. The Dutch disease model may not be a good fit for many resource-rich developing countries. While the model assumes fixed and fully employed capital and labor supplies before the resource-led boom begins, Ross (1999, p. 306) notes that developing countries ‘‘often have labor surpluses, and their resource booms draw in foreign capital and labor, offsetting any local scarcities.’’ Other scholars
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doubt that Dutch disease provides an adequate explanation for the various economic problems found in specific resource-rich countries. Sala-i-Martin and Subramanian (2003, pp. 16–17), for example, highlight numerous reasons why Dutch disease does not explain the assorted economic failures of oil-rich Nigeria. Some scholars (Davis, 1995; Iimi, 2006a) also fail to find evidence supporting the detrimental effects of a Dutch disease in large-N studies comparing the economic performance of resource-rich developing countries to developing countries as a whole. Following the pioneering work of van Wijnbergen (1984), others fundamentally question the whole premise of the Dutch disease as a problem. Davis and Tilton (2005, p. 238) maintain that ‘‘the Dutch disease actually allows a country to benefit from its new found mineral wealth by encouraging resources to flow from other sectors of the economy to the booming sector.’’ Yet, the Dutch disease is still evoked in the resource curse literature. Although increasingly eclipsed in popularity by institutionally based explanations, the crowding-out economic logic of the Dutch disease remains a frequent explanation for the poor economic performance seen in many resource-rich countries. Botswana merits study here both as a significant potential exception to the Dutch disease and also because the debate on whether or not Botswana has avoided the Dutch disease is far less settled than it initially appears. Although distinct, the terms ‘‘Dutch disease’’ and ‘‘resource curse’’ are ‘‘frequently thought to be synonymous’’ (Davis, 1995, p.
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1768). As used here, Dutch disease is a much narrower term than the resource curse. At least five different dimensions are highlighted in the resource curse literature. First, resource-rich countries are alleged to not invest adequately in education (Gylfason, 2001; challenged by Stijns, 2006). Second, resourcerich countries are subject to increased risks for civil war (Collier and Hoeffler, 2000; Ross, 2004). Third, resource-rich countries have difficulties in establishing or consolidating democratic forms of governance (Ross, 2001; Jensen and Wantchekon, 2004). Fourth, resource wealth is believed to lead to increased corruption and have corrosive effects on the quality of institutions (Leite and Weidmann, 1999; partially challenged by Petermann et al., 2007). Finally, oil and mineral-rich states are seen as susceptible to the Dutch disease and other ailments which ultimately produce slow or negative economic growth (Sachs and Warner, 1995; Sachs and Warner, 2001; challenged by Davis, 1995 and Stijns, 2005). This article is solely concerned with the Dutch disease and does not address other strands of the resource curse literature. After first reviewing the basics of the Dutch disease model, the article highlights some of the different positions previously advanced on whether or not Botswana has experienced a Dutch disease. My argument is that Botswana currently suffers from many of the symptoms of the Dutch disease but not for the causal reasons posited in the Dutch disease model.
The Dutch disease The phrase ‘‘Dutch disease’’ was coined by The Economist in 1976 to explain the negative effects that North Sea oil and gas revenues had on Dutch industrial production. In essence, the Dutch disease simply denotes an economy that features ‘‘the coexistence within the traded goods sector of progressing and declining, or booming and lagging, sub-sectors’’ (Corden and Neary, 1982, p. 825). As it is generally applied in cases where the booming sector is resource extractive and the lagging sectors are manufacturing and agriculture, the Dutch disease results from the hard currency inflows associated with surging resource exports leading to an appreciation of the real exchange rate. This coincides with a sectoral reallocation of economic resources. Capital and labor are drawn away from agriculture and manufacturing and they flow into the extractive sector. The prices of non-tradable goods such as construction and many other services also rise. The end result is higher costs and reduced competitiveness in the tradable agricultural and manufacturing sectors which face competitive international prices for their goods. Natural resource booms, in effect, crowd out other important sectors of the economy and render them uncompetitive. This results in countries with resource-dependent economies that are heavily exposed to the inherent volatility of commodity prices (Davis and Tilton, 2005, p. 236; Leite and Weidmann, 1999, pp. 8–9; Mogotsi, ¨ 2002, p. 132; Norberg and Blomstrom, 1993, p. 163). The Dutch disease operates through two distinct channels: the resource movement effect and the spending effect (Corden and Neary, 1982, p. 827). The resource movement effect occurs when the booming extractives sector draws capital and labor away from other sectors. As explained by Davis and Tilton (2005, p. 236), ‘‘Typically, domestic wage rates rise as the booming mineral sector is forced to offer workers higher salaries to attract the labor it needs.’’ This typically produces other adjustments in the economy including rising real exchange rates and increased wages and prices in the non-tradable sector which then draws additional labor from the lagging tradable sectors (Corden and Neary, 1982, ¨ p. 827; Norberg and Blomstrom, 1993, p. 163). The spending effect occurs when the extra income derived from booming resource rents is spent on domestic goods and services. More formally ‘‘the
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higher real income resulting from the boom leads to extra spending on services which raises their pricey’’ (Corden and Neary, 1982, p. 827). A further complication that is not technically part of the Dutch disease arises with commodity price volatility. Many governments that increase spending when prices are high are unable to cut expenditures when prices decline and find themselves incurring significant debt in order to maintain spending at boom levels. Botswana has been fortunate here in that diamond revenues are more stable than oil revenues. Indeed, the stability of rent streams is seen as a key explanatory variable accounting for much of Botswana’s revenue management success (Auty, 2001, p. 80 and 85; Hill and Knight, 1999, p. 313). This is certainly correct but shifts of plus or minus 15% of revenues are fairly typical in Botswana (Gabonowe, interview) and the country has sometimes been forced to reduce output and produce below capacity even if prices have remained stable (Jefferis, interview). Indeed, in response to the current economic downturn and a desire to avoid stockpiling surplus diamonds as it had to do in the early 1980s (Hill and Knight, 1999, pp. 307–310), Debswana shut all of its diamond mines in December 2008. Three of the mines (Jwaneng, Leithakane and Orapa No. 1) resumed production in mid-April 2009 but two (Damtshaa and Orapa No. 2) will remain closed throughout 2009. Debswana is expected to produce 13 million carats in 2009 which is less than half of the 32.3 million carats it produced in 2008 (De Beers Group, 2009). Compared to other commodity producers, Botswana benefits from a relatively stable rent stream but it has not been immune to periodic revenue volatility.
Diverse views on Botswana and the Dutch disease The argument that Botswana has not suffered from the Dutch disease is regularly advanced. A recent IMF study, for example, argued that ‘‘Botswana has benefited from the coexistence of good governance and abundant diamonds to materialize growth. No clear evidence can be found that deterioration in the terms of trade would negatively affect economic development, as the Dutch disease model would hypothesize’’ (Iimi, 2006a, p. 24). ¨ (1993) similarly find limited evidence of Norberg and Blomstrom either a resource movement effect or a spending effect in Botswana. The resource movement effect is sharply limited by virtue of the capital-intensive nature of diamond mining which results in an industry that only employs about 8000 people in total (IMF, 2007, p. 63). The spending effect has been limited for two main reasons. First, a large percentage of goods consumed domestically in Botswana are imported from South Africa, thus reducing the effects on the non-tradable sector. In recent years, ‘‘half of all goods and materials traded in Botswana are imported with three-quarters of them coming from South Africa’’ (IMF, ¨ (1993, p. 176) argue 2007, p. 40). Second, Norberg and Blomstrom that ‘‘revenues from the diamond industry have been kept in foreign capital markets rather than invested or consumed at home and this policy has largely reduced the spending effect.’’ Thus they find little evidence that agriculture or manufacturing in Botswana has suffered from Dutch disease effects. Finally, even one of the most critical observers of Botswana’s economic performance maintains that ‘‘It is agreed that Botswana does not suffer from Dutch disease, although all the typical pre-conditions are present’’ (Hillbom, 2008, p. 202). Moving somewhat away from this viewpoint is Mogotsi (2002, p. 129) who argues that Botswana has suffered from ‘‘a mild form’’ of the Dutch disease. Two reasons for the mild form of the disease are that Botswana had high unemployment at the start of its mineral boom and it did not have a large pre-existing manufac-
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turing sector. In Mogotsi’s view, the resource movement effect led to skilled labor migrating to the mining sector and being replaced by less skilled, previously unemployed agricultural workers. There was no reduction in overall manufacturing employment but ‘‘the lower skilled manpower is less productive, and causes a decline in the output of the sector’’ (Mogotsi, 2002, p. 138). In terms of the spending effect, Mogotsi argues that the core of the diamond boom from 1982 to 1987 saw both major spending increases and a significant appreciation of the real exchange rate. The real exchange rate depreciated after the initial boom but government recurrent spending did not (Mogotsi, 2002, pp. 144–146). To date, the effects of this have been modest as diamond revenues have remained high. Mogotsi fears that should these revenues ever decline, ‘‘the situation may be similar to that of other countries which enjoyed booms in the past, resulting in busts later, due to Dutch disease phenomena’’ (Mogotsi, 2002, p. 154). Love (1994) focuses on agriculture. While conceding that the direct resource movement effect from agriculture to mining was limited, Love argues that the diamond boom adversely affected agriculture through a rise in the pula’s value against the South African rand (Love, 1994, pp. 73–75). For Love, this means that recurrent drought is a marginal part of the explanation for Botswana’s agricultural decline. Instead, in explaining Botswana’s agricultural decline, Love contends that ‘‘the effects of the booming minerals sector on exchange rates and in permitting rapid growth of discretionary government spending have been of prime importance’’ (Love, 1994, p. 79). Perhaps the most prominent voice in Botswana today associated with the view that the country is suffering from the Dutch disease is Derek Hudson, a former Deputy Director of the Bank of Botswana. Hudson (2004b) starts by noting that ‘‘Botswana is getting most things right.’’ In this regard, he observes that ‘‘Botswana is well known for a stable government, a high international credit rating, relatively low income taxes, no exchange controls, a relatively low rate of corruption, relatively good telecommunications, a good banking system, excellent roads, and so ony’’ (Hudson, 2004b). He then asks why Botswana has had so little success diversifying its economy and why foreign direct investment outside of the diamond industry is largely bypassing the country (Hudson, 2004a; personal interview). Fundamentally, his concern is that ‘‘if we are so virtuous with respect to non-currency issues, why is it so difficult to create jobs in Botswana? What are we doing wrong?’’ (Hudson, 2004b). The explanation Hudson offers is that the country is suffering from the Dutch disease and that this is reflected both in an overvalued currency and in high wages. Hudson sees Botswana’s Dutch disease as reflecting the voting power of the elite. Formal-sector workers and trade unions combine to form a powerful political block favoring a strong currency to combat inflation. The result of a Dutch disease-induced overvalued currency and high wages is that Botswana’s non-diamond exports are internationally uncompetitive and the country is unable to diversify its economy (Hudson, personal interview).
Is there a Dutch disease in Botswana? The argument advanced here is that although Botswana has grown rapidly and for the most part, invested its mineral revenues wisely in education, health, roads and basic infrastructure, the country’s economy remains largely undiversified or more positively phrased, highly specialized. Yet, this is not the result of classic Dutch disease reasons. There has not been a significant resource movement effect in Botswana. Mining and quarrying accounted for only 3.1% of total formal-sector employment in Botswana in 2004 (IMF, 2007, p. 26). In recent years, mining and
quarrying employment in Botswana has ranged from a low of 6982 persons in 2001/02 to a high of 9705 persons in 2004/05 with a five-year average over that period of 8089 (IMF, 2007, p. 63). As a capital-intensive sector, mining requires relatively few employees, thus minimizing the resource movement effect. By way of illustration, mining accounted, on average, for 35.64% of Botswana’s GDP from fiscal year 2000/01–2004/05 while employing just over 8000 workers. By contrast, the manufacturing sector accounted for just 4.16% of GDP over the same period, yet employed more than 30,000 workers (IMF, 2007, p. 58 and 63). Beyond this, the Dutch disease model assumes full employment whereas Botswana has a large labor surplus. Mogotsi (2002) might be correct that the limited resource movement effect resulting from small numbers of skilled laborers being drawn into the mining and non-tradable sectors of the economy as the Dutch disease model predicts led to lower manufacturing productivity, but the overall impact of the resource movement effect in Botswana was minimal. If we are to find significant Dutch disease effects in Botswana, then we must look for them in terms of the spending effect. Mogotsi (2002, pp. 145–6) argues that Botswana saw both significant appreciation in its exchange rate and big spending increases during the core of its diamond boom from 1982 to 1987. She concludes that ‘‘Botswana seems to have experienced a Dutch disease, with significant spending effects, in respect of both government recurrent and household consumption spending’’ (2002, p. 148). While there is no doubt that Botswana’s spending on things like education and infrastructure is much higher than it would be in the absence of diamond rents, the spending effect is where Botswana has had its greatest success in mitigating the Dutch disease. The fundamental principle of Botswana’s approach for more than three decades has been that non-renewable resource revenues should only be used for investment or capital expenditures (defined as development expenditure and recurrent spending on education and health) and that recurrent spending must come from non-mineral revenues (Hermans, interview; Iimi, 2006a, p. 10; Jefferis, interview; Sharp, interview). To facilitate this, a separate Development Fund was created which can only spend money on projects approved in the country’s National Development Plan (NDP). The NDP determines Botswana’s spending priorities over a five-year cycle and projects cannot get funded unless they are incorporated into the NDP. In order to get into the NDP, a project must be vetted by the Ministry of Finance and Development Planning (MFDP) which is responsible for coordinating all development activities and setting spending limits. When things work in practice as they are designed to do in theory, the MFDP evaluates all projects in terms of their economic viability to prevent unviable pet projects from getting funded. Although detailed cost-benefit analyses are not carried out for some projects and a gap exists between MFDP rhetoric and reality on the rigorous evaluation process, this system has largely been driven by technical expertise and not political considerations (Jefferis, interview; Samatar, 1999, p. 94; Sharp, interview). This system of financial controls limits executive discretion and the prospects for ad-hoc financing outside of the NDP (Leith, 2005, p. 58; Sarraf and Jiwanji, 2001, p. 12). In addition to the Development Fund, Botswana also created two other special funds to help manage its mineral revenues. Recognizing that its diamond revenues would exceed its absorptive capacity, the government established a Public Debt Service Fund in 1972 to enable it to save money rather than contribute to economic overheating by spending it. The government thus chose to keep expenditure growth below the rate of revenue growth. To address the volatility of mineral revenues, Botswana established the Revenue Stabilization Fund in 1972 to accumulate reserves during booms that could later be used to cushion downturns. This
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meant that increases in diamond revenues did not necessarily lead to new spending while decreases in diamond revenues did not lead to sharp cutbacks (Hermans, interview; Jefferis, interview; Leith, 2005, pp. 106–108; Sarraf and Jiwanji, 2001, pp. 10–13). At the end of 2006, Botswana’s current account surpluses had allowed the government to accumulate a significant stock of reserves, amounting to about 75% of GDP (Dele chat and Gaertner, 2008, p. 5). Yet, in terms of diversification, the mining sector accounted for 35% of GDP in 2005, a figure that had not changed significantly for more than a decade. Diamonds still account for 75% of exports (IMF, 2007, pp. 20–22). While mining grew at an average annual rate of 5.1% between fiscal years 1994/95 and 2003/04 and government grew at an average annual rate of 6.2%, ‘‘Growth in other sectors has been minimal; it in fact decelerated from an annual average of 7% from 1984/85 to 1993/94 to about 1% in the following decade’’ (IMF, 2007, p. 22). Agriculture, which was growing by 8.3% per year in the 1970s before the onset of significant diamond production, actually declined by 1.2% per year in the 1990s (Good, 2005, p. 28; Sarraf and Jiwanji, 2001, p. 15). Agriculture fell from about 10% of GDP in 1981 to about 2% in 2004/05 (IMF, 2007, p. 22). Although agriculture may now be stable in absolute terms, it continues to decline as a share of GDP (Jefferis, interview; Sharp, interview). Manufacturing persists at around 4–5% of GDP (Leith, 2005, pp. 100–101). Given Botswana’s growing economy, this implies an absolute expansion of the manufacturing sector even if its relative share of the overall economy has remained stable or declined moderately. One observer sums up the overall situation here by noting that ‘‘Botswana’s contemporary economy is thus not substantially more diversified than was the case at independence. The government’s efforts to diversify have failed.’’ (Hillbom, 2008, p. 196). Although Botswana’s currency is undoubtedly stronger than it would be in the absence of diamond revenues, currency appreciation does not appear to be a consistent contributor to these Dutch disease-like effects. The pula appreciated by more than 20% against the South African rand during the 1980s and Love (1994, pp. 74–75) argues that this had much to do with the decline in Botswana’s agricultural sector. Mogotsi (2002, p. 144) similarly argues that the pula appreciated significantly during what she terms the core of Botswana’s boom from 1982 to 1987. At the same time, though, while the currency was appreciating against the rand, it also depreciated by far more against the US dollar and European currencies. According to an IMF study, before Botswana’s currency devaluation in February 2004, the pula had appreciated by more than 20% against the rand as compared to the exchange rate level in 1980. During this same period, however, the pula had depreciated by about 80% against the US dollar and by about 65% against the Euro (Iimi, 2006b, p. 5). Botswana faces difficult exchange rate management decisions. South Africa accounts for approximately 75% of Botswana’s total imports which are priced in rand (Iimi, 2006b, p. 18; IMF, 2007, p. 40) while diamonds which are priced in US dollars have accounted for nearly 80% of total export revenues over the six-year period from 2000 to 2005 (IMF, 2007, p. 85). As Clark Leith (2005, p. 78) has pointed out, ‘‘The authorities could choose to have the pula follow the US dollar, the South African rand or some combination of the two. But, given the movement of the rand/dollar exchange rate, it was not possible for the pula to remain stable against both the rand and the dollar.’’ Botswana’s currency has appreciated in value at various times since significant diamond revenues arrived but its appreciation has by no means been steady or consistent. Botswana’s real effective exchange rate (REER) is estimated to have depreciated by about 15% in the 1980s, mainly reflecting the pula’s fall in value
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against the US dollar and major European currencies (Iimi, 2006b, p. 9). The pula is generally seen as not being significantly over- or undervalued throughout the 1990s (Dele chat and Gaertner, 2008, p. 6 and 12; Iimi, 2006b, p. 19). It did appreciate in value sharply from 2000 to 2004, resulting in the currency being overvalued by an estimated 5–10% (Iimi, 2006b, p. 19). This short-term appreciation was, however, largely corrected when the country devalued the pula in 2004 and again in 2005 and switched to a crawling-peg exchange rate regime (Dele chat and Gaertner, 2008, p. 12). Two different IMF studies have recently concluded that Botswana’s currency has not been significantly or consistently overvalued. According to Iimi (2006b, p. 22), ‘‘the Botswana pula seems to have been undervalued in the late 1980s and overvalued by 5–10% in recent years [before the devaluations in 2004 and 2005], though the misalignment in the 1990s seems to have been very marginal.’’ Dele chat and Gaertner (2008, p. 21) similarly find that the overvaluation of the early years of this decade was corrected by the 2004–2005 devaluations and that ‘‘Botswana’s REER is broadly in line with economic fundamentals and consistent with external sustainabilityy.’’ Although the IMF frequently finds that exchange rates are not overvalued in many of the countries it studies, Botswana’s successful exchange rate management is also widely noted by other scholars. Hill (1991, p. 1189), for example, maintains that ‘‘By all measures, real exchange rate appreciations of significant size or duration have been avoided’’ (see also Hill and Knight, 1999. pp. 336–337) while Hjort (2006, p. 187) concludes that exchange rate management and the introduction of the crawling peg in Botswana ‘‘must be seen as a success.’’ In short, the pula has occasionally been overvalued against the dollar or the rand but it is not accurate to claim that Botswana’s currency has been consistently overvalued since diamond revenues arrived or that these short-term appreciations can explain the country’s long-term failure to diversify its economy over a period of decades. Botswana has arguably avoided Dutch disease through the exchange rate, only to see the problem emerge in other ways. The channel has not come through appreciation of nominal exchange rates but through wages and their relation to productivity (Jefferis, interview). Given its small number of employees, if high wages were confined to just direct employees in the diamond industry, this would not be a major problem. Unfortunately, high wages have extended far beyond the mining sector to encompass the entire government sector (Hudson, interview). Arguably, this has been a deliberate policy to spread some of the benefits of mineral wealth to what otherwise might become a growing class of unemployed university graduates. In 2005, 42% of Botswana’s formal-sector workers were employed by the government with their average wage exceeding those offered in the private sector by over 40% (IMF, 2007, p. 25). Government pay scales are more compressed than in the private sector—higher at the lower end and lower at the higher end. The government has thus been a wage leader at the lower end and contributed significantly towards making Botswana a relatively high cost economy (Jefferis, interview). The net effect of a large high-wage government sector has been to increase the reservation wage that workers demand before accepting employment (IMF, 2007, p. 28). Botswana’s fundamental problem is not an overvalued exchange rate. Rather, it is an uncompetitive relationship between wage rates and labor productivity. This pattern diverges from the channels typically identified in the Dutch disease literature. As Leith notes, ‘‘The crowding out of private formal-sector employment via the more rapid growth of government wages and salaries stands in contrast to the crowding-out mechanisms typically found elsewhere: exchange rate overvaluation and high real interest rates. On the whole, these were avoided in Botswana’’ (2005, p. 91). There are also alternative explanations for Botswana’s small agricultural and manufacturing sectors. Only 4% of Botswana’s land is suitable for arable agriculture and the country’s arid
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climate does not offer it much comparative advantage in agriculture outside of cattle production. Agriculture suffers from recurrent drought as well as government policies that strongly favor large cattle owners over small peasant producers (Good, 1999, pp. 190–1; Hillbom, 2008, p. 209; Love, 1994, pp. 79–80; Meisenhelder, 1994, pp. 40–45). In contrast to Indonesia which devoted significant portions of its resource wealth to agricultural development (Lewis, 2007, p. 111), Botswana did not. From fiscal years 2000/01 through 2006/07, Botswana spent an average of 9.19% of its GDP on education. During that same period of time, it spent an average of 3.46% of GDP on health and 3.26% of GDP on defense but only 1.4% of GDP on agriculture, forestry and fishing (IMF, 2007, p. 72). This neglect is particularly surprising given that agriculture accounts for 70% of the labor force (Sarraf and Jiwanji, 2001, p. 15). Agriculture in Botswana has not suffered due to a resource movement effect into the extractive sector or because of an overvalued exchange rate. It has suffered from a lack of government investment at least outside of support for large scale cattle owners. In this regard, Timmer (2007, p. 30) characterizes Indonesia’s significant investments in rural infrastructure as ‘‘doubly pro-poor’’ because they led to rapid growth with an improving income distribution and because they were deliberately targeted at the poor with an emphasis on labor-intensive investments. He goes on to note that ‘‘Roughly two-thirds of the reduction [in poverty] observed during the period of fastest growth in manufactured exports was due to growth in agricultural output at the provincial level’’ (Timmer, 2007, pp. 46–47). Botswana’s failure to pursue such an agriculturally-based strategy contributed to some of the Dutch disease-like effects seen in the country today but its problems in agriculture are not attributable to the Dutch disease. Manufacturing is held back by a number of problems that have nothing to do with diamond revenues. These include Botswana’s tiny domestic market, landlocked location, high transportation costs and lack of entrepreneurs. Sound macro-economic policy frameworks have been widely praised but micro-economic policy frameworks have often assumed the existence of entrepreneurs who were not there (Siphambe, interview). The high cost of providing utilities to a country the size of France with less than 2,000,000 people makes Botswana’s costs uncompetitive (Freeman, interview). As examples, electricity costs of US$0.10 kWh-1 in Botswana compare to $0.06 in South Africa, $0.05 in Zimbabwe and $0.04 in Mozambique and Namibia while water costs of $1.02 m-3 in Botswana compare to $0.67 in Namibia, $0.35 in Mozambique, $0.34 in Zimbabwe and $0.30 in South Africa (Dele chat and Gaertner, 2008, p. 19). High levels of income inequality further reduce the attractiveness of Botswana’s limited domestic market of 1.7 million people as approximately half the population has extremely limited purchasing power (Tsie, interview). The manufacturing investments that the government has been able to attract with generous incentives have mainly brought footloose companies that rapidly shut down facilities and relocate production as soon as the incentives expire (Good and Hughes, 2002, p. 43; Leith, 2005, p. 99; Samatar, 1999, p. 155). The muchtouted prospects for diversification into tourism have run into environmental constraints, particularly given that many people come to Botswana to avoid a mass tourist experience (Freeman, interview; Hermans, interview). Finally, the country’s proximity to South Africa greatly impedes its ability to promote manufacturing. Gaborone is closer to Johannesburg than any other South African city except Pretoria. Botswana’s simultaneous blessing and curse is that it is, in effect, almost another province of South Africa. The blessing is the incredibly wide range of goods on offer while the curse is that almost all of them come from South Africa. Botswana’s dearth of manufacturing facilities is, in this sense, no different from that
found in outlying South African provinces like Northern Cape or Eastern Cape (Sharp, interview). Even one of the country’s most sympathetic observers notes that ‘‘Botswana’s integration as a Bantustan into the South African economy has significantly hampered Botswana’s industrial development efforts’’ (Samatar, 1999, p. 131). Less colorfully, the IMF points out that ‘‘it may be cheaper for Botswana to import from South Africa than to manufacture goods domestically’’ (2007, p. 27). Beyond this, South Africa actively contests Botswana’s attempts to attract foreign direct investment in manufacturing by using its membership in the South African Customs Union to export from Botswana to the South African market. After Hyundai established a car manufacturing plant in Botswana, the South African government disputed rules of origin, the collection of customs duties and placed numerous non-tariff barriers in the way of Botswana’s ostensible ability to export duty-free to South Africa (Good and Hughes, 2002, pp. 51–58; Masire, 2006, pp. 179–80; Tsie, interview).
Conclusion In spite of its sustained rapid economic growth, Botswana suffers many of the symptoms of Dutch disease but not due to the causal mechanisms identified in the Dutch disease literature. There has been little resource movement effect to speak of and the country has aggressively worked to counteract the spending effect through sound macro-economic policies and extremely prudent fiscal policies which have led to the accrual of significant savings. Such savings will undoubtedly allow Botswana to minimize the deleterious effects of losing half its diamond production in 2009, much as the country successfully managed the loss of diamond sales and revenues in the early 1980s (Hill and Knight, 1999, pp. 339–341). Botswana’s currency is stronger than it would be in the absence of diamond revenues and it has occasionally been overvalued. Such overvaluations have, however, been sporadic and they cannot explain the country’s persistent failure to diversify its economy. Rather than an overvalued exchange rate, whatever Dutch disease effects there are have shown up through wages and their relationship to labor productivity. The problem in Botswana in this regard is not a resource movement effect towards the mining sector but rather one towards the much larger government sector with its generous wage leadership. Yet, many of the explanations for Botswana’s mineral-dependent economy have nothing to do with either diamond revenues or the Dutch disease. With or without diamonds, Botswana would struggle to overcome such conditions as being a landlocked country prone to recurrent drought with a small population that lives in the shadow of a regional hegemon that aggressively pursues its own self-interest. None of this is to argue that resource wealth has been a curse for Botswana. Indeed, the generally wise use of its diamond revenues has ensured that Botswana faces these larger challenges with a much better educated population, significant savings and a much greater base of high-quality installed infrastructure than it otherwise would have. Theoretically, this study lends support to the argument advanced by Davis (1995) that the Dutch disease should not be seen as a temporary affliction. As he explains, when mineral booms are of long duration (Botswana’s is now in its fourth decade), ‘‘the Dutch disease merely describes the transformation of the economy from one long-run equilibrium to another’’ (Davis, 1995, p, 1768). Of the 23 countries identified in his study as mineral-dependent in 1970, only one of them, Tunisia, was not so classified in 1991 despite probable attempts by many of the other countries to diversify their economies. Davis concludes from this that ‘‘mineral endowment-related comparative advantages are
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very slow to change, and that it is difficult if not impossible to force diversification of a resource-related economy contrary to comparative advantage’’ (Davis, 1995, p. 1772). Botswana’s experience clearly supports this argument. One can easily identify alternative policies that might have been pursued in Botswana that could have made a marginal difference towards promoting diversification. For example, the country could have invested more of its resource wealth in arable agriculture or small cattle holders and it could have better designed and monitored its incentives to attract long-term foreign direct investment in manufacturing. Such policies would not, however, do much to overturn Davis’s basic insight about the long-term durability of resource-related economies. Botswana has done about as well managing its resource wealth as could realistically be expected. The country does not suffer from a classic Dutch disease. It is, however, unlikely to succeed in diversifying its economy away from diamonds anytime soon.
Acknowledgments I gratefully acknowledge summer research funding from the IUPUI School of Liberal Arts which made my fieldwork in Botswana possible. Thanks to all those who were kind enough to share their thoughts with me in personal interviews. Ken Good graciously invited me to Botswana shortly before he was summarily deported from the country. Steve Marr and Ian Taylor also helped me immensely in Botswana. I would also like to acknowledge the very helpful comments of two anonymous referees. References Auty, R.M., 2001. The political state and the management of mineral rents in capital-surplus economies: Botswana and Saudi Arabia. Resources Policy 27 (2), 77–86. Collier, P., Hoeffler, A., 2000. Greed and grievance in civil war. World Bank Policy Research Working Paper 2355. The World Bank Development Research Group, Washington, DC. Corden, W.M., Neary, J.P., 1982. Booming sector and de-industrialization in a small open economy. The Economic Journal 92 (368), 825–848. Davis, G.A., 1995. Learning to love the Dutch disease: evidence from the mineral economies. World Development 23 (10), 1765–1779. Davis, G.A., Tilton, J.E., 2005. The resource curse. Natural Resources Forum 29 (3), 233–242. De Beers Group, 2009. Debswana mines set to re-open, April 14. Dele chat, C., Gaertner, M., 2008. Exchange rate assessment in a resourcedependent economy: The Case of Botswana. IMF Working Paper WP/08/83. International Monetary Fund, Washington, DC. Good, K., 1999. The state and extreme poverty in Botswana: the san and destitutes. Journal of Modern African Studies 37 (2), 189–205. Good, K., 2005. Resource dependency and its consequences: the costs of Botswana’s shining gems. Journal of Contemporary African Studies 23 (1), 27–50. Good, K., Hughes, S., 2002. Globalization and diversification: two cases in Southern Africa. African Affairs 101 (402), 39–59. Gylfason, T., 2001. Natural resources, education and economic development. European Economic Review 45 (4–6), 847–859. Hill, C.B., 1991. Managing commodity booms in Botswana. World Development 19 (9), 1185–1196. Hill, C., Knight, J., 1999. The diamond boom, expectations and economic management in Botswana. In: Collier, P., Gunning, J.W. (Eds.), Trade Shocks in Developing Countries, vol. I: Africa. Oxford University Press, Oxford. Hillbom, E., 2008. Diamonds or development? A structural assessment of Botswana’s forty years of success. Journal of Modern African Studies 46 (2), 191–214. Hjort, J., 2006. Citizen funds and Dutch disease in developing countries. Resources Policy 31 (3), 183–191. Hudson, D., 2004a. Is the Pula still overvalued? Part I. Mmegi, June 25, B9. Hudson, D., 2004b. Is the Pula still overvalued? Part II. Mmegi, July 2, B6.
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Iimi, A., 2006a. Did Botswana escape from the resource curse? IMF Working Paper WP/06/138. International Monetary Fund, Washington, DC. Iimi, A., 2006b. Exchange rate misalignment: an application of the behavioral equilibrium exchange rate (BEER) to Botswana. IMF Working Paper WP/06/140. International Monetary Fund, Washington, DC. International Monetary Fund, 2007. Botswana: selected issues and statistical appendix. IMF Country Report No. 07/228. International Monetary Fund, Washington, DC. Jensen, N., Wantchekon, L., 2004. Resource wealth and political regimes in Africa. Comparative Political Studies 37 (7), 816–841. Leite, C., Weidmann, J., 1999. Does mother nature corrupt? Natural resources, corruption, and economic growth. IMF Working Paper WP/99/85. International Monetary Fund, Washington, DC. Leith, J.C., 2005. Why Botswana Prospered. McGill-Queen’s University Press, Montreal and Kingston. Lewis, P.M., 2007. Growing Apart: Oil, Politics, and Economic Change in Indonesia and Nigeria. University of Michigan Press, Ann Arbor. Love, R., 1994. Drought, Dutch disease and controlled transition in Botswana agriculture. Journal of Southern African Studies 20 (1), 71–83. Masire, Q.K.J., 2006. Very Brave or Very Foolish? Memoirs of an African Democrat. Macmillan Botswana Publishing Company, Gaborone. Meisenhelder, T., 1994. Bonanza and dependency in Botswana. Studies in Comparative International Development 29 (1), 38–49. Mogotsi, I., 2002. Botswana’s diamonds boom: was there a Dutch disease?. South African Journal of Economics 70 (1), 128–155. ¨ Norberg, H., Blomstrom, M., 1993. Dutch disease and management of windfall ¨ gains in Botswana. In: Blomstrom, M., Lundahl, M. (Eds.), Economic Crisis in Africa: Perspectives on Policy Responses. Routledge, London. Petermann, A., Guzman, J.I., Tilton, J.E., 2007. Mining and corruption. Resources Policy 32 (3), 91–103. Ross, M.L., 1999. The political economy of the resource curse. World Politics 51 (2), 297–322. Ross, M.L., 2001. Does oil hinder democracy?. World Politics 53 (3), 325–361. Ross, M.L., 2004. What do we know about natural resources and civil war?. Journal of Peace Research 41 (3), 337–356. Sachs, J.D., Warner, A.M., 1995. Natural resource abundance and economic growth. Development Discussion Paper No. 517a. Harvard Institute for International Development, Cambridge. Sachs, J.D., Warner, A.M., 2001. The curse of natural resources. European Economic Review 45 (4–6), 827–838. Sala-i-Martin, X., Subramanian, A., 2003. Addressing the natural resource curse: an illustration from Nigeria. IMF Working Paper WP/03/139. International Monetary Fund, Washington, DC. Samatar, A.I., 1999. An African Miracle: State and Class Leadership and Colonial Legacy in Botswana Development. Heinemann, Portsmouth, NH. Sarraf, M., Jiwanji, M., 2001. Beating the resource curse: the case of Botswana. Environment Department Working Paper # 83, Report # 24753. The World Bank Environment Department, Washington, DC. Stijns, J-P., 2005. Natural resource abundance and economic growth revisited. Resources Policy 30 (2), 107–130. Stijns, J.-P., 2006. Natural resource abundance and human capital accumulation. World Development 34 (6), 1060–1083. Timmer, C.P., 2007. How Indonesia connected the poor to rapid economic growth. In: Besler, T., Cord, L.J. (Eds.), Delivering on the Promise of Pro-Poor Growth: Insights and Lessons from Country Experiences. The World Bank Washington, DC. van Wijnbergen, S., 1984. The ‘‘Dutch disease’’: a disease after all?. The Economic Journal 94 (1), 41–55.
Interviews Freeman, Peter, Economic Consultant, Ministry of Minerals, Energy and Water Affairs, Gaborone, 16 July 2004. Gabonowe, Ribson, Director of Mines, Department of Mines, Gaborone, 9 July 2004. Hermans, Quill, former Permanent Secretary at the Ministry of Finance and Development Planning and first governor of the Bank of Botswana, Gaborone, 9 July 2004. Hudson, Derek, former Director, Central Statistics Office and former Deputy Director, Bank of Botswana, Gaborone, 30 June 2004. Jefferis, Keith, Deputy Director, Bank of Botswana, Gaborone, 2 July 2004. Leith, J. Clark, Economic Consultant, Ministry of Finance and Development Planning Gaborone, 5 July 2004. Sharp, Chris, Managing Director, Economic Consultancies (PTY) Ltd., Gaborone, 15 July 2004. Siphambe, Happy, Department of Economics, University of Botswana, Gaborone, 16 July 2004. Tsie, Balefi, Dean, 2004. Faculty of Social Sciences. University of Botswana, Gaborone 7 July 2004.