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Big Saturday Read: How the poor cousin became a donor

March 2, 2019

 

When Botswana gained independence in 1966, it was a desperately poor country where the average income was equivalent to USD80. The economy was highly dependent on subsistence cattle ranching and beef exports were the major foreign currency earner.

 

Following decades of colonial neglect as a protectorate of the British, health, education and infrastructure were in bad shape. Many narratives say there was only 12 kilometres of paved road in the entire country. At least 50% of its budget was funded by grants from the former colonial power, Britain. There was nothing remarkable about the landlocked country most of which is covered by the Kalahari Desert.

 

Given these conditions, it is not an exaggeration that Botswana’s economic prospects at independence were severely limited.

 

Now however, Botswana is an upper middle-income economy and is considered one of Africa’s most stable and successful economies. The average GNI  per capita was US$6730 in 2017. Over the last few decades, its economy has been one of the pacesetters on the continent. It’s one of the world’s biggest and most successful diamond producers. It has a stable currency, the Pula, which trades in the heavyweight division of world currencies. From 12 kilometres in 1966, by 2006 it had multiplied to more than 10,000 km.

 

By contrast, when Zimbabwe got independence in 1980, it had such a sophisticated and thriving economy that it was regarded as the “jewel of Africa”. For a few years afterwards, it was regarded as one of Africa’s success stories, with great potential to lead the continent which was already mired in great challenges. The economy was diversified, with thriving agricultural, mining and manufacturing/industrial sectors.

 

With its apparent success and strength in agriculture, exporting food to neighbours in distress, Zimbabwe was affectionately referred to as the “Breadbasket of Africa”. At that time, Zimbabwe was far ahead of its counterpart, Botswana, which still lagged behind in terms of health, education, infrastructure and other public services. It would have been utterly ridiculous to imagine that Zimbabwe would look to Botswana for any form of assistance.

 

Now however, Zimbabwe is languishing in the lower leagues of the world economy, a mighty fall from the lofty heights and promise of the past. The economy has been in the intensive care unit for many years and if it were a corporate organisation, it would have been placed under administration long back.

 

The country has the ignominious record of the highest hyperinflation in the 21st century, after notching 79.6 billion percent in mid-November 2008. By early 2009, the country had abandoned the local currency, in favour of the US dollar and other foreign currencies. This was in stark contrast to 1980, when the Zimbabwe Dollar held its own against the US Dollar and other major currencies. Today, Zimbabwe is known for its potpourri of funny money – from bearer cheques and agro cheques to bond notes and the recently adopted RTGS Dollar.

 

Today, it is Zimbabwe which is down on its knees, grateful and effusive in its praise in response to assistance from Botswana. Optimists argue that Botswana’s assistance is no different from support from the West, which is packaged as “aid”. They see it as a progressive step whereby Africans help fellow Africans. It is an optimistic way of packaging the support. But it obscures the failings of the regime especially when compared to the progress of its neighbour.

 

In reality, it is a measure of how the mighty have fallen that Zimbabwe’s state media went on a propaganda spree, announcing a six hundred dollar loan from Botswana, only for the Botswana Government to issue a formal statement refuting the claims as “unfounded”. The Botswana government was not lending any money to the Zimbabwean government, they explained. Rather, there would be a guarantee facility for Botswana businesses wishing to invest in Zimbabwe. It was humiliating that in their overzealousness, the Zimbabwean state media had misrepresented the facts and embarrassed a neighbour into refuting the claim.  

 

There is nothing wrong, in principle, with Botswana helping a neighbour in distress. After all, Botswana is facing a migration problem having to deal with political and economic migrants fleeing challenges in Zimbabwe. This can only be minimised from the source, that is, by making Zimbabwe better for its citizens. But how did it happen that a formerly poor neighbour has transformed itself into a donor country for its formerly wealthy and more prosperous neighbour?

 

The temptation is to put it down to luck, as one often finds in narratives about Botswana’s economic success over the last few decades. This “luck” refers to Botswana’s discovery of diamonds soon after independence. But while diamonds have been a major factor in Botswana’s economic success, explanations that focus only or major on the phenomenon of luck owing to this discovery are too simplistic.  

 

There is far more to Botswana’s success than that stroke of good fortune. As aptly stated by Barclay in his work, “Botswana’s growth could not have occurred without diamonds. The revenue generated from diamonds created the perfect conditions for economic growth. However, economic growth was not guaranteed, as these resources could have just as easily led to the corruption and patronage seen in other diamond producing countries”.

 

The point that Barclay makes is fundamental. Diamonds were a huge driver of growth but their discovery alone was not a guarantee of economic growth and success. This is true. Botswana is not the first African country to discover valuable mineral resources. There are many countries that are richly endowed with resources, but they have fallen to what is generally referred to as the “resource curse” whereby resources bring more problems than benefits.

 

Examples of the “resource curse” abound on the continent. Sierra Leone’s diamonds brought a bloody civil war. The Democratic Republic of the Congo, a resource-rich country which has long been mired in civil conflict and under-development with fights revolving around its untapped wealth. Nigeria is Africa’s largest oil-producer but it still suffers fuel shortages and conflicts abound in the oil producing areas where locals remain desperately poor while multinationals and elites reap generous rewards.

 

Like Botswana, Zimbabwe had its stroke of diamond luck in 2007 when large deposits of alluvial diamonds were discovered in Chiadzwa, in the eastern part of the country. But unlike Botswana, this find turned out to be nothing but a mirage for the country. There is nothing to show for it. During the Inclusive Government between 2009 and 2013, the Minister of Finance in charge of the treasury often complained that diamond revenues were unaccounted for. It was the military and political elites that got lucky, not the people of Zimbabwe. So no, the discovery of diamonds alone does not provide the explanation for Botswana’s economic success.   

 

There are of course many factors attributed to Botswana’s good performance. A stable political and economic environment, a relatively free economy in which property rights are protected, general respect for fundamental rights and freedoms, sound economic management and prudent public policies have all been important factors in their successful journey. Nevertheless, this would not have happened without sound and progressive leadership and democratic and economic institutions. This is a point that has been driven home eloquently by economists, including Acemoglu and others in their work, Why Nations Fail. Barclay reiterates the same point in his work on Botswana, as do many other scholars.

 

Botswana has been fortunate to have good leaders who by and large focus on the public good and manage natural resources prudently. Most scholarship on Botswana’s economic performance acknowledges the exemplary leadership of its founding president, Sir Seretse Khama who set the pace for his successors. Although the ruling party he established has had a monopoly of power since independence and while opposition parties do raise complaints over the country’s democratic challenges, the country is generally seen as stable and peaceful, providing conditions that are conducive to business and progress.  

 

Although the Botswana Democratic Party dominates the country’s politics, Botswana has managed to establish a tradition of regular change of leadership, with presidents complying with term limits. In this regard, the country has resisted the temptation that so often afflicts their counterparts on the continent to change the constitution and do away with presidential term limits. This is why since 1980, Zimbabwe’s year of independence, Botswana has had four presidents, compared to Zimbabwe’s two, the first had to be removed by coup. Establishing this culture of change of leadership, even within the single party dominance is an important building block in promoting democracy.  

 

More significantly, Botswana has been vastly more prudent and wiser in the exploitation and management of its diamonds, something that Zimbabwe has utterly failed to do. It is not that Botswana is completely free of cronyism, but it has been able to channel its diamond profits into developmental projects rather than exclusively direct them into the pockets of political and military elites. How it managed and deployed its diamond profits was a ready model which was available for Zimbabwe to draw lessons from when it discovered its gems in 2007.

 

When Botswana discovered diamonds in the late sixties, it went into a joint-partnership with diamond mining giant, De Beers, realising its own limitations. The result was the establishment of Debswana, a joint operation in which the Botswana government’s share grew progressively over time. The initial agreement, which gave Botswana 15% of the company was re-negotiated as more diamonds were discovered. The government now owns half of Debswana. This has produced a win-win situation for both the government and De Beers, with profits accruing to and benefitting the nation rather than just the political elites. Critics might argue that the deal is still not perfect, but it is far better than what has obtained in fellow African countries.

 

The situation in Zimbabwe was the opposite. While Botswana managed the diamonds for national development, Zimbabwe’s diamonds were subjected to an orgy of plunder by political, military and foreign elites. The crackdown by the state on local communities which sought to exploit the alluvial diamonds has been well-documented. Soon afterwards, political, military and foreign elites converged on Chiadzwa, staking claims to the exclusion of local communities and the nation at large.

 

Former president, Robert Mugabe once claimed that $15 billion worth of diamonds had been stolen. Most observers agreed the $15 billion claim was outlandish, but nevertheless, the admission of plunder by the then head of state was an indication of the egregious theft that had taken place in Zimbabwe. This went on for a few years, with the elites amassing a huge amount of personal wealth while the nation suffered. Later, in 2015, the government tried to nationalise the diamond companies but it was a case of closing the stable doors after the horses had already bolted.  

 

The difference between Botswana and Zimbabwe is, therefore, not explained by resource endowments but by the quality of the countries’ respective leadership and its ability to manage the economy. A country can have abundant resources but if it lacks sound leadership, it counts for nothing. If anything, it is arguable that Zimbabwe is more richly endowed with a diverse range of resources, including arable land. It is important to comment briefly on this issue because it also impacts Zimbabwe’s economic output and performance. Zimbabwe’s inability to fully manage and exploit its vast arable land is truly scandalous.

 

In economic terms, Zimbabwe is currently sitting on what economist Hernando De Soto referred to as “dead capital” in respect of arable land. It goes without saying that Zimbabwe used to be an agricultural powerhouse in the past. The fact that arable land was live capital was an important factor in this success story. It was live capital in the sense that arable land could be traded and for that reason, it could be used to generate credit from banks and other lending institutions. Farming is a business, which requires vast amounts of capital. The land could generate credit because there was a sophisticated and, for a long time, a secure system of property rights.

 

Ownership has many benefits and incentives which stimulate production. An owner can use their property as security for a loan, which can be used to fund the agricultural enterprise. An owner can also use their property to secure a lease of farming machinery and equipment from leasing institutions. An owner can invest in long-term projects because they have security of tenure and can be assured that they will reap rewards of their investment. Secure title is therefore important in the running of a farming enterprise.  

 

There is consensus among fair-minded people that the land reform exercise was necessary in a country that had inherited a racially-skewed land ownership system. Nevertheless, the implementation also had a collateral damage on the previously secure and trusted system of property rights. Land that could previously generate credit to finance farming collapsed to nothing. The destruction of the old property rights system represented a fundamental change that caused a diminution in wealth. Officially, most of the agricultural land now belongs to the state. Those on the land have no security and banks and financial institutions cannot extend credit on an asset that has no security of title.  

 

The need for a system that gives back some life to the land in financial terms is known, but so far the government has failed to come up with an agreeable solution. Command Agriculture, the much-vaunted policy to support farmers has had a torrid tenure and is fraught with corruption. There is no real confidence in the leases that the government is giving out because there is always the risk that the state can use its power to prise it away. Without security of tenure, the financing of farming remains a precarious affair. Government alone does not have the power to support commercial agriculture.

 

The government’s approach to arable land is yet another example of failing to manage a resource and to capitalise on an area of comparative advantage. Now Zimbabwe is importing grain from neighbours like Zambia, when just a few decades ago, it was the exporter. With its vast arable land and expertise, Zimbabwe has no need to be spending scarce foreign currency importing food that it could easily grow and sell to other countries.   

 

As with diamonds, Zimbabwe’s problem is not that it does not have arable land. It is that it has simply failed to manage and exploit it to give the country a competitive advantage. That is why Zimbabwe is now begging for financial assistance from Botswana, importing grain from Zambia and haemorrhaging talent as young Zimbabweans escape poverty, unemployment and seek pastures new.

 

What Zimbabwe needs most from its neighbours is not money but lessons in leadership and sound economic management. Botswana has the template on diamond mining. It’s a simple copy and paste job. But Zimbabwe’s political elites are too greedy, rapacious and selfish. They looted the Chiadzwa diamonds and would loot some more if new opportunities arise. Botswana may have given Zimbabwe some assistance, but it could be dwarfed by the contributions that Zimbabwe’s political and military elites hold in their personal accounts, most of them abroad.

 

The fact of the matter is that Zimbabwe could get a billion dollars from its neighbours but it will come begging again in a few months’ time. There is a reason why lenders have refused to extend credit to Zimbabwe. The country doesn’t pay its debts. There is no trust, and without trust there is no credit.

 

What Zimbabwe desperately needs is sound leadership and strong democratic and economic institutions. These are the qualities that have made Botswana outstanding over the decades. In Seretse Khama, Botswana had a founding father who had long term vision and sound political and economic management skills. His successors took the baton and maintained a similar approach.

 

The diamond discovery could have become a curse for Botswana as it was in other countries like Sierra Leone and the DRC. They could have gone to waste, through elite plunder, as was the case in Zimbabwe. The difference is that Botswana’s leaders had far better vision and were sound managers of resources for the public good. Revenues have been ploughed back for social development which has helped transform the country from the wasteland it appeared to be at independence.   

 

This is not to over-hype or romanticise Botswana. It has its challenges. If one were to ask an average BaTswana, they might have a different opinion over the success narrative that is reflected in governance indicators where the country ranks highly. For example, it has consistently been in the top ten in sub-Saharan Africa in the World Bank’s Doing Business Index, which measures the ease of doing business. The indigenous San peoples may not share the same joy, as they complain that they are discriminated. The poor who are yet to reap the benefits of the success story might also have different ideas. The country has not performed well in the fight to contain the HIV/AIDS pandemic, which puts a strain on the health service.

 

Economists warn that overreliance on diamond revenues is unsustainable in the long run and encourage more diversification of the economy if growth is to be sustained. but Botswana is aware of this weakness, and its working on it.

 

Yet, with all these challenges, it is incredible that Botswana has become a donor to Zimbabwe. When President Masisi came to Harare this week, he brought with him medical equipment and drugs to help shore up Zimbabwe’s failing healthcare system. The irony is that Zimbabwe’s leaders routinely seek medical treatment abroad because the healthcare system collapsed under their stewardship. They might not even understand the weight and nuance of the message by a neighbouring president who came bearing gifts for public hospitals. In effect, the Botswana taxpayer has joined the millions of other foreign taxpayers in Western countries who have been propping up Zimbabwe’s healthcare system. At least 90% of medical drugs in Zimbabwe’s public hospitals come from donors. It is a tragic situation.

 

Conclusion

 

It’s sad that Zimbabwe is now relying on its cousin for assistance. It’s worse that the country’s media has to make false claims which the neighbour has to deny. It should never be like that. It’s a sign of gand failure that Zimbabwe has to be in this sorry situation. The difference between us and Botswana is not the discovery of resources. It’s a difference in leadership. Botswana, which was poorer than Zimbabwe at independence is now a donor to Zimbabwe because the latter has had a poor, selfish and greedy leadership. The greatest thing that Botswana could give us as a people is the wisdom of how they managed to make good use of their resources.  

 

WaMagaisa

 

wamagaisa@me.com  

 

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