A SERIES OF NOTES FROM THE WORLD’S DEVELOPMENTAL FRONTIERNOTES. FROM AFRICA 3: Botswana (Part I)
Map of Botswana / Joe Studwell
Huxleў continues to publish a series of notes on Africa as a global development frontier. The next object of Joe Studwell was the Republic of Botswana — one of the developed African countries.
At one time, Joe Studwell became famous as the author of the bestseller How Asia Works. We hope that Studwell’s notes will help us understand how Ukraine works.Botswana is one of only two exceptional African developmental success stories, in the sense of a state that transformed itself from poverty to upper middle income status — meaning from the fourth to the second of the World Bank’s income tiers — in only a generation following independence. (The other genuine success story is the tiny island nation of Mauritius.)
Botswana, in turn, offers two significant lessons for other developing countries, particularly African ones. The first is how Botswana was able to transform a traditional, localised, aristocratic ruling structure, led by tribal chiefs, into a modern, national, democratic political structure in which elite interests were sufficiently accommodated for them to accept the transformative process.
The second is the results, positive and negative, that occurred when a poor but well-managed, resource-rich state followed strictly orthodox economic advice about how to employ its natural endowments to develop its economy.
Botwana was defined in the colonial era by being a large, and largely desert-, territory surrounded by white minority-ruled settler states — South Africa, Southern Rhodesia (Zimbabwe) and Namibia. As in Namibia, the main viable economic activity was cattle herding on semi-arid land.
The heir to the throne of the largest ‘tribal’ grouping (the term the British used although majorities of each of eight designated ‘tribes’ were assimilated rather than descended from common ancestors) was Seretse Khama, who was exiled for more than five years because his marriage to a white British woman was deemed unbearably provocative to the apartheid South African government.
Nonetheless, on his return in 1956 Khama worked closely with the last British Commissioner to begin to develop national institutions of government. A Legislative Council was initially split half and half between African and European members, with Africans elected by a show of hands which ensured that cattle-owning aristocrats dominated the returns.
When politicised Batswana — as the people of Botswana are known — miners working in South Africa formed a radical political party, Khama responded by forming an establishment party led by the African membership of the Legislative Council. The Botswana Democratic Party (BDP) went on to dominate Botswana’s politics until the present day.
Khama formed alliances with anyone committed to a national, if conservative, political programme. The most important was with Quett Masire, the son of a headman on the Bangwaketse Reserve, home to the second most populous group, who had been elected to the Legislative Council and went on to be Botswana’s Vice President, and later its second President.
Masire was a highly successful agricultural entrepreneur. The British backed and trained Khama’s team, allowing it in the last years of colonial rule to operate like a full cabinet, to undertake policy formulation and to make grant pitches to the British Colonial Office.
Although Khama was a conservative aristocrat, he stood up firmly for the principle of racial equality. In 1962 he moved a motion in the Legislative Council to establish a select committee on racial discrimination.
The report the committee published was the basis for ending the racial segregation that was unofficial but ubiquitous. Similarly, Khama saw off efforts by the tiny white minority in Botswana to retain the same political representation — meaning the same number of members of parliament — as the African majority.
Khama forced the political leaders of the white minority to come to terms with the reality of African majority rule and also convinced the chiefs of the eight ‘tribal’ groups to surrender key powers to a new national government. Under the terms of the post-independence constitution, the chiefs could not run for seats in the legislature but instead held unelected posts in an advisory House of Chiefs.
‘Advisory’ meant powerless. In addition, the constitution created District Councils, which took over the staff, offices, vehicles and most of the local government functions of the chiefs and former Tribal Councils. The chiefs were compensated with stipends and ex-officio seats on District Councils. By the time they understood the full extent of their loss of power, it was too late.
Khama, his government and the BDP were also careful to shore up their constituency of economic support. In 1963, a National Development Bank was established to provide credit to well-to-do cattle owners to sink boreholes in the western reaches of the Tribal Reserves, extending on to the sand veld of the Kalahari.
In conjunction with big increases in state veterinary services and fencing construction from 1964-5 — the latter to limit the spread of outbreaks of foot and mouth disease — this built on a colonial strategy of subsidising large-scale cattle farmers.
The BDP added the nationalisation of Botswana’s abattoir on the South African border, allowing for profit from meat sales to be returned to the big cattle owners who provided the abattoir with the vast majority of its animals.
After independence, what became the Botswana Meat Commission (BMC) would also absorb losses onto the government’s account during downturns in the beef market, further subsidising big cattle interests.
The lower rungs of aspirational aristocrats and other entrepreneurs who sought bigger herds, credit and cattle-farming subsidies became the group which dominated among the BDP’s legislators and key supporters.
When elections under the new constitution took place in March 1965, the BDP campaigned aggressively in rural areas — usually with the support of the local chief and dominant cattle interests — and won 28 of 31 seats in a new Legislative Assembly. Seretse Khama became Prime Minister and Botswana became independent in September 1966.
A REPUTATION FOR RELIABILITY
Seretse Khama’s approach to politics was pragmatic and conservative, and his approach to economic development was very similar. Unlike the leaders of other newly independent states such as Zambia and Tanzania, Khama did not rush to localise the civil service, instead waiting until adequately-trained and experienced Batswana were available.
By the mid-1970s, the number of Batswana civil servants tripled as part of a national training drive. However, the replacement of expatriates in the most senior civil service positions was only just beginning.
When the government lacked sufficient local teachers for its education programme, affordable imports were found in Ghana and India. Large numbers of American Peace Corps volunteers were recruited and given roles, in everything from teaching to the central government bureaucracy.
A South African socialist and anti-apartheid campaigner, Patrick van Rensburg, was welcomed to open vocational training ‘brigades’ that enrolled thousands of young people. The approach to state capacity building was to pursue anything that worked.
The BDP leadership also made a point of leading by example. The key examples set were racial integration and frugality. Ministers made a point of joining new, racially-integrated sports and social clubs that were established in the capital, Gaborone. With respect to frugality, Seretse Khama was the only government minister to fly first class. Vice President Masire and other ministers travelled in economy.
The best resources in government were invested in a planning unit that was combined with the finance ministry to be a Ministry of Finance and Development Planning (MFDP). It was led by Quett Masire and set out economic development objectives in rolling five-year plans which were passed into law and could not therefore be changed without parliamentary approval.
Under Masire, expatriate economists led by Oxford- and Harvard-trained South African Quill Hermans, and Cambridge-trained Briton Peter Landell-Mills, developed one of the best reputuations in Africa for reliable aid planning and for spending grant funds as promised. Already in the early 1970s, only Congo and Gabon received more aid per capita in Africa.
Botswana in 1966 had the commitment to collective action for national development, the pragmatic, ‘whatever works’ approach, and the nascent planning bureaucracy that characterised the most successful East Asian developmental states.
When mineral discoveries were made by foreign companies in Botswana, the government was therefore equipped to manage their exploitation.
The first deposits to interest multinational miners were copper-nickel ore around two remote settlements, Selebi and Phikwe, in the east. The second was a diamond-bearing kimberlite pipe at Orapa, in a more central part of Botswana, found by South Africa’s de Beers.
The copper-nickel project’s three linked mines, smelter, dam, rail spur, power station and town required investment equivalent to one-and-a-half times Botswana’s 1968-9 Gross Domestic Product (GDP). Masire and Hermans ensured that all investment risk, including debt guarantees, was held by the miners and financing agencies that supported them.
Botswana secured a free 15 percent equity interest as the price of the mining licence, with royalties to be paid on operating profits in addition to corporate tax on profits and withholding tax on dividends. The Botswanan approach was vindicated when copper and nickel prices fell and the mine never made money. However, the mine did fund the build-out of Botswana’s power and water utilities, and road infrastructure.
It was the Orapa diamond mine, which opened in 1971, that changed Botswana’s future. In its first full year, 1972, Orapa produced 2.5m carats and accounted, via the government’s 15 percent share of profits, and taxes, for 10 percent of government revenues. De Beers requested to double its agreed rate of production and asked to commence mining two more diamond-bearing pipes at Letlhakane, 40 kilometres away.
The Botswanan planning team had followed the advice of independent consultants to stipulate that the original contract would be renegotiated in the event of ‘extraordinary’ developments.
This clause was invoked and the government demanded the venture become a 50:50 joint venture, with De Beers still shouldering all investment costs. It took three years of negotiations, however the South African company eventually conceded even though, when taxes were considered, the new deal gave Botswana 65-70 percent of profits.
In 1976, the year after the new joint venture agreement was signed, De Beers announced the discovery of a kimberlite pipe in the south of Botswana at Jwaneng.
Where Orapa yielded 80 carats per hundred tonnes of extracted material, and Letlhakane 30 carats, Jwaneng would yield 140 carats, leading it to become the most profitable diamond mine in the world. Once the three major sites were all functioning, from 1982, Botswana accounted for around a quarter of global diamond output and this share would rise further.
Botswana’s planning unit produced other important results with respect to the country’s foreign trade regime. Following independence, Peter Landell-Mills set out to renegotiate the terms of Botswana’s membership of the Southern Africa Customs Union (SACU), which had not been reviewed since 1910.
The planning unit secured a deal for Botswana based on current customs receipts plus a multiplier of 1.42 to compensate for having a tariff regime set by South Africa. The effect was to immediately increase customs revenues from Rand1.4m in 1968, the last year of the old formula, to Rand5.14m in 1969.
When mine development began in the 1970s, requiring imports of large amounts of dutiable equipment and accelerating economic growth that in turn encouraged further imports — customs receipts rose much further, helping Botswana to balance its current budget from 1972.
In 1976, Quill Hermans led the launch of a domestic Botswanan currency, the Pula. Previously, Botswana used the South African Rand, however the MFDP wanted a domestic currency so that foreign exchange reserves generated by mining exports were managed by a new central Bank of Botswana.
A national currency, with locally-managed controls on movements of capital, also allowed Botswana to limit the appreciation of the Pula during the mining boom and thereby protect the interests of cattle exporters.
In the first two decades after independence, Botswana’s economy grew at more than 13 percent a year as mining came to account for half of GDP. The share of mining receipts in government income rose even faster, to a quarter of revenues in the mid-1970s, and more than half in the mid-1980s.
At the same time, Botswana’s reputation for planning and project delivery maintained high levels of foreign aid. In the second half of the 1970s, aid still constituted one quarter of Botswana’s total government expenditures. From being one of the poorest countries in the world, the question for Botswana became how to employ surpluses.