BOTSWANA 'S ECONOMIC SUCCESS OFFERS LESSONS FOR

UNCLAS GABORONE 000785

SIPDIS

STATE FOR AF/S, AF/EPS, EEB
STATE PLEASE PASS USTR WJACKSON

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EAID BC
SUBJECT: BOTSWANA 'S ECONOMIC SUCCESS OFFERS LESSONS FOR
MINERAL-RICH COUNTRIES

REF: GABORONE 754 AND PREVIOUS (NOTAL)


1. Summary. Botswana is a remarkable economic success story in
Africa. Since independence in 1966, it has escaped poverty to
become a middle income, democratically stable success, avoiding the
numerous pitfalls that commonly affect mineral rich countries in
Africa. There is no single reason for Botswana's success; rather, a
combination of wise leadership, sound economic policies and
effective institutions have allowed the country to prosper - growing
by an annual average GDP per capita rate of over 6% since 1970.
Botswana demonstrates that a country rich in minerals, in this case
diamonds, can manage its resources with vision and in ways that
enhance the country as a whole, supporting all of its citizens.
While there are no cookie-cutter solutions, Botswana's achievements
offer some best practices for other mineral-rich countries,
including creating a revenue stabilization fund and empowering a
well-educated, politically independent civil service. End Summary.


2. This is the fifth in a series of cables intended to assess the
strategic value to the United States of our collaboration with the
Government of Botswana (GOB).

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Leaders Serving the Common Good
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3. Botswana has been fortunate to have had an unbroken series of
competent political leaders who have worked for the common good. At
independence in 1966, Botswana's first President Seretse Khama
recognized that his role as President was to develop Botswana's
infrastructure and economy and improve the lives of its citizens.
The country's subsequent leaders (Botswana has had only four
Presidents so far) have largely followed Khama's example. Strategic
leadership in Botswana also takes place within the civil service.
Well-educated technocrats manage the day-to-day operations of
government. Today, the GOB's track record of transparency and
accountability distinguishes Botswana from many of its peers. But
the country's direction and priorities are not simply dictated by
its elected leaders. Historically, important decisions were made by
chiefs after first building consensus at the village meeting place
(the "kgotla") through long discussions where all village males were
able to express their opinions regardless of their social status.
Botswana's modern political leaders still address and consult at
kgotla meetings today, and this longstanding tradition of discussion
and consensus building helps to influence and legitimize government
policy.

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Conservative, Consistent Policies
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4. Botswana's sound and consistent economic policies are another
reason the country has been able to achieve such rapid growth and
development. While diamonds were discovered in Botswana in the late
1960's, large-scale mining only began in the late 1970's. Because
it was created before Botswana reaped the benefits of its diamond
wealth, Botswana's macroeconomic policy focused on resource
conservation and minimizing risk; the Batswana were farmers raising
cattle on the edge of a desert and were cautious in the face of
drought. From independence, the country has embarked on a series of
long-term National Development Plans, which prioritize development
Qlong-term National Development Plans, which prioritize development
projects, including construction of schools, roads and health
centers. These economically conservative policies have continued
even as diamond revenues have increased. Outside investors were
also attracted to Botswana because its economic policies have been
consistent over time. Soon after large-scale diamond mining began
in Botswana, the GOB had the foresight to create a "rainy day fund"
with its excess revenues, rather than spending its newfound wealth
on consumption or white elephant projects. The GOB then used its
foreign exchange and cash reserves to offset recurring short-term
economic fluctuations. Botswana's consistent macroeconomic
environment and high rate of savings not only earned the country a
Grade "A" investment rating from Moody's, but also enabled Botswana
to keep this rating despite the current economic crisis. While
these policies laid a foundation for Botswana's economic success,
they have ultimately been successful due to their implementation by
independent institutions within Botswana.

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Institutions That Work
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5. Financial institutions including the Ministry of Finance and
Development Planning (MFDP) and the Bank of Botswana (BOB) - which
serves as the national reserve bank - are models of effective public

institutions within Botswana and across the continent. The
institutions are run by well educated and capable leadership and
staffed by a competent, apolitical civil service corps. Most
importantly, they function independently and are not subject to
political interference in either policy matters or in daily
operations. Positions in these institutions are awarded on a
person's qualifications rather than as a political reward. As a
result, both institutions have effectively fulfilled their mandates
and have engaged sound economic practices in directing Botswana's
growth. Among other responsibilities, the BOB manages Botswana's
extensive foreign exchange reserves and implements the country's
exchange rate policy. This stewardship is often cited as one reason
why Botswana's economic performance has remained strong and why
Botswana has been able to avoid the problem common to resource-rich
countries of an overinflated currency, which often devastates local
industry by making imports cheap and accessible.

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International Partnerships
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6. Though Botswana received significant donor attention in its early
years, once it achieved middle income status in the late 1990's,
foreign development assistance was largely withdrawn. However,
Botswana was one of the countries hardest hit by the HIV/AIDS
crisis, and then-President Mogae reached out to the U.S., U.N. and
other donors to request new assistance to address the epidemic. The
USG is currently Botswana's single largest donor, but our programs
here are almost exclusively AIDS related. (The U.S. PEPFAR program
spent $93 million in Botswana last year, and over $300 million since
2005.) Outside of help with the AIDS crisis, Botswana today
receives limited technical assistance and financial support from the
USG and other donors. The GOB is generally happy with the support
it receives, although senior officials regularly note that Botswana
still has significant development challenges and should not be
"punished" for its successes by, for example, being left out of the
Millennium Challenge Program due to its relatively high average
income. The USG has partnered with Botswana in recent years to
provide strategic advice for economic diversification, the country's
next challenge. OPIC, for example, provided a $250 million loan
facility to help start a diamond cutting and polishing industry
here, while USTDA grants have helped with power sector and aviation
security projects. The GOB also works productively with the
USAID-funded Southern African Competitiveness Hub, using Hub advice
to improve the Trans-Kalahari transport corridor, implement common
regional customs documents and work toward more efficient border
posts.


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Exportable Lessons?
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7. Comment. Botswana is an example of how a mineral-rich country
can use its resources well. Botswana proves that good governance,
sound policies and functional, independent institutions can lead to
sustained economic growth. While there are no cookie-cutter
solutions, in many ways Botswana's success could be emulated in
other countries, many of which have abundant unrealized potential
through minerals and natural resources. First, Botswana's
experience suggests that resource dependent economies should
Qexperience suggests that resource dependent economies should
concentrate on saving revenues and create stabilization funds to
buffer themselves as prices fluctuate. Though it may be difficult
to begin to accumulate reserves during an economic slowdown,
countries should prioritize implementation of such funds as their
economies recover. Second, building a competent, politically
independent civil service would appear to be essential. Competent
technocrats within Ministries not only help to deepen the expertise
to make and implement policies, but also help mold future leaders
from within the civil service, which could bring technical expertise
and policy consistency over time. Success is hardly easy or swift,
but Botswana's experience suggests that true economic success and
stability in Africa is possible. End Comment.
HAMILTON