Book Summary: “Botswana: A Modern Economic History” by Hillborn and Bolt

Title: Botswana – A Modern Economic History: An African Diamond in the Rough
Author: Ellen Hillborn and Jutta Bolt
Scope: 3 stars
Readability: 3 stars
My personal rating: 4.5 stars
See more on my book rating system.

If you enjoy this summary, please support the author by buying the book.

Topic of Book

The authors explore the economic history of Botswana over the last century.

My Comments

I feel like the authors are a bit hard on the Botswanans. Starting in 1970 Botswana went through a stunning economic transformation, that very few in the West are aware of.

While the authors are correct to point out that the Botswanan economy is heavily dependent upon diamond exports and very unequal, Botswana have also made huge progress on most development metrics. This is particularly impressive in comparison to the rest of Sub-Saharan Africa and other developing nations that export minerals and energy.

Despite these flaws, this book is the best introduction to the Botswanan economy.

Key Take-aways

  • The dominant ethnic group in Botswana, the Tswana, were a herding society supplemented by small-scale agriculture (agro-pastoral).
  • In an effort to make the colony pay for itself, the British encouraged the growth large-scale ranching for export. This rapidly increased inequality, as the wealthiest ranchers scaled up fast.
  • Since 1970 Botswana has been one of the strongest growing economies in the world. This sets the nation in startling contrast to the rest of the Sub-Saharan Africa.
  • This economic growth has largely been due to exporting diamonds, so their economy is not very diverse.
  • Despite attempts by the government to diversify their industrial economy, diamonds still dominate the economy.
  • Unlike most developing countries that have a valuable mineral or energy resource, Botswana has resisted the profits being taken over by a small elite. The nation has made very important investments in health, education and transportation that benefit a large swathe of the population.
  • Despite this progress a major global downturn in diamond imports could seriously hurt the Botswanan economy.

Important Quotes from Book

Botswana is, in terms of population, a small African country, and overall it has played a modest role in the economic and political history of the region. At the same time, its exceptional diamond-led economic growth record since independence has generated significant attention from both scholars and the policy community. The reason for this lies not only in a will to understand how a country that used to be among the poorest in the world, situated in a region often characterized by underdevelopment and conflict, has managed to achieve consistent long-run economic growth. It is also spurred by an interest in unravelling and explaining an uncharacteristic case of a natural resource-rich developing country that has managed to pair natural resource dependency with economic progress, substantial social development, and peaceful political maturity. The common experience, globally as well as in Africa, is that natural resource wealth has been negatively correlated with economic growth. In many developing countries, the abundance of valuable natural resources has even been transformed into a curse characterized by economic crisis, corruption, and political instability including violence. In contrast to this overall discouraging experience, Botswana constitutes a positive and unique example.

Existing explanations frequently found in the literature for Botswana’s successful management of diamond incomes and subsequent growth miracle can crudely be divided into four main lines of argument. First, it is stated that limited European settlement during the colonial era and the fact that most resources remained in the hands of the indigenous population meant that the country suffered little from the adverse consequences of colonial influence. This argument ties to the second claim that precolonial political institutions characterized by accountability and broad-based negotiations persisted throughout the colonial period up until today. Third, the persistence of good precolonial institutions is said to explain a development-enabling quality found in contemporary political institutions, and this has catered for a prudent management of natural resource incomes and sound economic policies. Finally, in the midst of the institutional explanation, the country is said to be fortunate in that it has had wise leaders from independence onwards who have promoted political stability and national development instead of appropriating the state, turning it into a source for personal enrichment at the expense of national poverty and unrest.

We agree that an investigation into long-term institutional development is key for understanding Botswana’s development trajectory and that the first generation of independence leaders played a decisive role in instigating the country’s specific growth experience. At the same time we claim that the above cited explanations constitute an oversimplification..  To start with, colonial influence was limited only during the first half of the colonial period, and we will show that from the 1930s onwards with the establishment and growth of the cattle export sector colonial policies actually had a profound effect on socioeconomic development.

Our study offers evidence on which we base our arguments that in the midst of progress, the country remains with two overarching challenges. First, its economy is stuck in a natural resource trap and has yet to figure out how to move away from natural resource-based growth to a more diversified economy where additional high-productive sectors are playing a role in generating employment and stimulating growth. Second, the persistent high levels of inequality, in terms of income as well as division of resources and opportunities, give cause for concern. Botswana has a dual society where exceptional growth, substantial wealth, high rates of urbanization, social development, and socioeconomic modernization are found next to high unemployment rates, lingering poverty, and neglected rural areas. Further, we show that neither natural resource-dependent growth nor lack of diversification and high levels of inequality are unique to the current diamond economy. They are part of Botswana’s long-term development trajectory.

Botswana’s diamond economy from the 1970s onwards is a well-known case of natural resource-led growth, and it is from the success during this era that scholars and policymakers commonly draw their lessons. With this book we contribute two important additions to the existing mainstream literature. First, we claim that there is a need of increased awareness that the diamond economy is the second period of natural resource-dependent growth in the history of the country, the first being the colonial cattle-led growth period which started in the 1930s.

Second, we argue that there should be a much more critical reflection on the characteristics of the diamond economy including a recognition of the challenges inherent in the lack of economic diversification for sustainable future growth and high levels of inequality.

In 1967 the discovery of diamond deposits was announced, and once exports took off in the mid-1970s, four decades of exceptional economic growth followed. During the 1980s, the economy of Botswana grew by 13 per cent annually, and in total over the first four decades after independence, the country registered the highest long-term growth rates in the world, including the Asian Tigers. Today, Botswana is classified as an upper middle income country.

The most exceptional element in the growth experience has not, however, been the abundance of a highly valuable natural resource enabling significant growth. Such commodity-driven growth spurts are not uncommon, albeit diamonds are unusually valuable and extraction has been high and consistent. Instead, it is the quality of the political institutional structure and the government’s long-term good management of diamond incomes that makes Botswana stand out as a unique case.

In the time before our investigation, Basarwa populations living in nomadic hunting–gathering communities inhabited the area that constitutes contemporary Botswana. In the mid-nineteenth century, the domino effect of a period of political unrest in Southern Africa, known as the Difaqane, caused the resettlement of a number of Tswana groups. Upon arrival, the geographic conditions such as the combination of access to agricultural resources, that is, land and water, and the disease environment, determined where the Tswana groups eventually settled.

We will show how the roots of this institutional development can be traced back to the geography of the Tswana settlement patterns. Climatic conditions, especially the bareness of the land, restricted the opportunities for crop farming in the area. Instead, the Tswana agro-pastoral system of production focused on cattle keeping wherein the ownership of livestock translated into wealth, social status, and access to labour. In this hierarchical society, the largest cattle holders were also the political elite. With markets and monetary incomes being very scarce, the elite invested their cattle wealth in building patron– client relationships and securing political loyalty.

In the west lay the Kalahari Desert, an environmental region that today is commonly termed the sandveld. It is covered by deep Kalahari sand and is by its natural conditions too dry for crop farming and cattle rearing. Until the later drilling of modern boreholes from the 1920s onwards, this area was populated almost solely by hunting and gathering Basarwa groups. In the north there was water, the Okavango and Chobe Rivers, but also malaria and tsetse flies. In search for a combination of access to water and a healthy climate, the Tswana primarily settled in the eastern region, also known as the hardveld.

While the hardveld was less dry than the sandveld, the whole area, while suited for subsistence agriculture, lacked the potential for successful surplus crop farming. Consequently, the Tswana relied heavily on cattle, but contrary to most African pastoralist populations they were sedentary agro-pastoralists, combining cattle herding and subsistence crop farming.

The climatic preconditions on the hardveld where the Tswana merafe were primarily located were dry but mostly compatible with the Tswana’s agro-pastoral system of production constituting limited crop farming with a focus on livestock herding.

While agriculture provided the Tswana with staple foods, it was animal husbandry generally, and cattle keeping specifically, that constituted the proper source of wealth and social status.

In the 1830–1840s the period of violence and political unrest in Southern Africa known as the Difiquane caused a domino effect of movement of numerous population groups in the region. Some of these groups were the Tswana merafe that subsequently settled in the territory that is contemporary Botswana. At the time, the area was inhabited by hunting and gathering Basarwa groups that were displaced and have ever since constituted a discriminated minority group.

In the Tswana agro-pastoral system of production opportunities for successful crop farming were severely limited for climatic reasons and instead surplus production, asset accumulation, and social status were all focused around the holding of livestock generally and cattle specifically. Cattle markets were extremely limited and rather than cattle wealth being turned into cash incomes it was used to build patron–client relationships to secure access to labour and political loyalty through the cattle-lending mafisa system.

The Bechuanaland Protectorate was established in 1885. The primary motivation for the British conquest lay neither in that the territory held documented valuable resources nor in that it had a wealthy taxable population, but in the politics of not leaving the territory to be colonized by any other European power. The initial decades of colonial rule entailed limited colonial influence and the main ambition of the administration was to set up territorial control and a taxation system.

Whilst the [British] colonial power saw limited opportunities for the development of agricultural or mineral production within Bechuanaland in the early colonial era, the Protectorate was still, like all colonies, expected to pay its own way within the British Empire. To this end, two primary strategies were designed that would influence the economic structures of the Tswana states from the onset of colonial rule—encouragement of labour migration and establishment of a taxation system to ensure government revenues.

The colonial administration in Bechuanaland eventually identified ranching as the comparative advantage of the territory.

Beef was primarily exported in the form of the herding of live animals across the border to the neighbouring territories. This made it a bulk good that was not conditioned by infrastructure development such as railways, but still had high transaction costs in the form of inefficient transportation.

After the establishment of the cattle sector, Botswana’s economy started to expand… Overall average incomes rose modestly, but not everyone enjoyed similar increases. The small elite of government employees and large-scale cattle holders gained substantially, while most other groups only saw limited improvements or even stagnation during the growth period. The private sector remained underdeveloped, something that was reflected in the narrow demand for skilled workers, low skill premium, and lagging of private sector wages relative to the public sector.

Based on existing agricultural production rather than regional or global market demand, cattle exports were identified as the comparative advantage of the territory. We have argued that the impact the establishment and development of the cattle export sector had on economic, political, and social structures in both colonial Bechuanaland and later independent Botswana has commonly been underestimated. The most important colonial legacies from this time have been the establishment of natural resource-based and export-led economic growth together with the rising unequal distribution of opportunities, political influence, incomes, and assets spearheaded by the existing cattle-holding elite.

A decade after diamonds were discovered, mining activities had taken over the role of being the prime driver of economic expansion. The resulting growth completely overshadowed the achievements of the cattle economy. It was another example of natural resource-driven growth, and the fundamental explanation for the success of the second period lay in that a low-value agricultural product, that is, cattle, had been exchanged for a high-value mineral, that is, diamonds.

We argue that while Botswana has managed long-term economic growth, it has failed to initiate sustainable inclusive economic development.

Taking advantage of one’s natural resources for securing export revenues has been a common strategy for many countries and the role of natural resources typically increases with the value of the resources. Hence, there are many economies in the world that are completely dominated by point-source resources such as oil, gas, and diamonds, or valuable agricultural produce such as cocoa. As revenues from such exports raises wealth and purchasing power, this allows for increasing imports and investments in modern technology and human capital as well as in alternative productive sectors. Such developments could stimulate the rise of various productive economic sectors as well as raise overall labour productivity. While some countries have managed to use the export-led growth based on valuable natural resources to instigate endogenous growth, others appear to be caught with vulnerable economies dominated by natural resources. Many of those have even experienced paradoxical economic stagnation or crisis in the midst of natural resource abundance.

Despite extraordinary export incomes from diamond mining and prudent financial management of these resources, gains have not been invested in alternative high-productive and employment-creating sectors, neither by the government nor by individuals and companies in the private sector.

Benefits from economic growth have been transferred to the population via traditional social development in the form of education, health care, clean water, infrastructure development, poverty alleviation programmes, and so on. Impressive socioeconomic progress has primarily been explained by good political institutions and the multiparty democracy and political maturity has become a trademark for Botswana. Meanwhile, high levels of inequality in incomes and opportunities persist. While the state has been development oriented in its social policies, the absence of inclusive economic development has resulted in the creation of a dual society where poverty and underdevelopment exist in the midst of wealth and modernity. Together with the lack of diversification and sectorial change, this remains as Botswana’s primary development challenge for the future.

If you would like to learn more about the challenges that Africa faces in creating economic growth, read my book From Poverty to Progress.

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