Mining institutional quality: how Botswana escaped the natural resource curse *.
Subject:
Natural resources (Botswana)
Natural resources (Economic aspects)
Economic development (Botswana)
Economic development (Forecasts and trends)
Authors:
Beaulier, Scott A.
Subrick, J. Robert
Pub Date:
09/01/2007
Publication:
Name: Indian Journal of Economics and Business Publisher: Indian Journal of Economics and Business Audience: Academic Format: Magazine/Journal Subject: Business; Economics Copyright: COPYRIGHT 2007 Indian Journal of Economics and Business ISSN: 0972-5784
Issue:
Date: Sept, 2007
Topic:
Event Code: 010 Forecasts, trends, outlooks Computer Subject: Market trend/market analysis
Product:
Product Code: 9008000 Economic Programs-Total Govt; 8515300 Development NAICS Code: 926 Administration of Economic Programs; 5417 Scientific Research and Development Services
Geographic:
Geographic Scope: Botswana Geographic Name: Botswana Geographic Code: 6BOTS Botswana

Accession Number:
169308056
Full Text:
The natural resource curse has achieved the status of a stylized fact within development economics (Auty 1990; Gelb 1998; Sachs and Warner 1995, 1999, 2001). While the resource curse argument rests on sound economic logic, there are outliers that require explanation. To date, the case of Botswana has been treated as an interesting anomaly worthy of footnote in much of the resource curse literature. The story of Botswana helps development economists and policymakers understand how an institutional weak country can develop in the presence of significant natural resources.

INTRODUCTION

The natural resource curse has achieved the status of a stylized fact within development economics (Auty 1990; Gelb 1988; Sachs and Warner 1995, 1999, 2001). Countries with an abundance of natural resources tend to have lower rates of economic growth, while countries with poor natural resource endowments grow more rapidly. Fareed Zakaria (2003, p. 75) provides evidence that the curse has attained a level of acceptance in popular discussions of underdevelopment. He writes,

Throughout sub-Saharan Africa, the natural resource curse has manifested itself in a variety of ways. In Nigeria, the ruling government profited from overtaxing and essentially nationalizing the oil industry. Similarly, Angola's reliance on oil has produced severe economic imbalances and unsustainable fiscal policies. In more extreme cases, natural resources have been the fuel for wars and social unrest. Sierra Leone, for example, was a country blessed with large diamond and hard mineral reserves. When Sierra Leone became an independent country in 1961, the government used diamond revenue to support militia groups and party loyalist, rather than build infrastructure and support its citizens. The increasing poverty only served to perpetuate the cycle of violence and continue a downward economic spiral. Today, the World Development Indicators, 2005 indicates that Sierra Leone is the poorest country in the world. In almost every resource rich country in the sub-Saharan region, the story is the same: governments pursue short-sighted, predatory policies that guarantee long-run economic stagnation. As a result, poverty persists and human capabilities remain limited.

While empirical support for the resource curse is a "reasonably solid fact" (Sachs and Warner 2001, p. 837), (1) there is no real consensus on what policies or institutions can help countries escape the curse. This paper discusses some of the necessary conditions that must be present for countries looking to escape the curse. We examine the development of institutions that helped to alleviate the natural resource curse in Botswana. That is, we tell an "analytic narrative" of how Botswana, a sub-Saharan African country with weak institutions early on, escaped the curse. By looking closely at Botswana's experience, more general conclusions can be drawn for other weak African states.

Our view is consistent with explanations that claim that good institutions and sound economic policy offer a sufficient condition for resource rich countries to prosper. We do not dispute the claim that if governments in resource rich countries credibly commit to (1) low taxes; (2) balanced budgets; (3) free trade; (4) a respect for property rights; and (5) monetary restraint, resource endowments will not hamper their economic development. But, we do dispute the thesis policy reform is a viable option for many African countries and that policy reform is all that is needed to escape the curse. For most "African tragedies" (Easterly and Levine 1997), we are being utopian when we say good policy is all that they need to enjoy prosperity (as if this is some kind of small feat). For most countries, escaping the resource curse requires more than good policy--it requires political institutions that reinforce the reforms, stable legal institutions, and a whole lot of luck. These are some of the lessons that can be learned from a close study of Botswana.

To date, the case of Botswana has been treated as an interesting anomaly worthy of footnote in much of the resource curse literature. Rather than treat Botswana as an outlier, its success requires explanation. A careful study of how Botswana escaped the resource curse in spite of its poor initial institutions is vital since, to the best of our knowledge, Botswana is the only resource rich country that has gone from being a third world country to a middle income country. As we will see, Botswana's experience illustrates how an institutional weak country can develop in the presence of significant natural resources. It is our belief that resource rich countries--especially those in sub-Saharan Africa--would be well-advised to follow Botswana's example, rather than consider more popular proposals like (1) increasing dependence on foreign aid; (2) subsidizing non-resource industries to force greater diversification; or (3) increase human capital investments by rapidly increasing public education spending.

One final note should be made regarding the methodology of this research. While aggregate data discussing Botswana's economic development serves a useful purpose, it is often inaccurate, dirty, or completely lacking. To get a better feel for the actual conditions present in Botswana, some of our analysis comes from on-the-ground field work. The research approach has been inspired by the ethnographic approach one can find in the field of sociology. (2) While the research does rely on some conventional data sources, it also draws on seven weeks of fieldwork that took place in the summer of 2004, a lengthy review of Botswana's written history, and an extensive survey of the University of Botswana's historical archives. In all, 35 interviews were conducted with businessmen, government officials, expatriates, and local citizens during the summer of 2004. By being on the ground in Botswana, we were able to get a better feel for the reasons why Botswana has escaped the resource curse. One final note: dates and locations of all interviews are provided, but several of the respondents preferred to remain anonymous. (3)

THE NATURAL RESOURCE CURSE AND BOTSWANA

Resource rich countries tend to experience low rates of economic growth. Though it may seem counterintuitive, countries with few resources are the more successful countries in the world. As Sachs and Warner (1999, p. 46) state

Of course, this is an average that includes many countries that have experienced far worse overall results. Most of the below average performances can be found in sub-Saharan Africa, which makes Botswana's case even more intriguing.

Figure 1 and Figure 2 illustrate the general relationship between natural resource endowments and economic growth. (4) Countries that exported a lot of natural resources in 1970 have struggled to develop relative to countries with few natural resources. The correlation is both statistically and economically significant, and there are few exceptions to this trend line. When we look more closely at this graph, though, Botswana is already behaving like an outlier. Even though, Botswana is classified as a resource poor country in 1970, their average annual growth rate is more than 3 percentage points higher than the trend line would predict.

Of course, with any general pattern, there are some interesting and noteworthy outliers. At one extreme is the case of Hong Kong. Hong Kong has experienced a remarkable transition from desolate rocky island with little prospect for development to an upper income country (Bauer 2001). At the other extreme, there are resource rich countries that have flourished. The United States, Canada, and Australia immediately come to mind as resource rich countries that have enjoyed high growth rates. But in these cases, they had developed limited governments and robust institutions during the periods of large resource endowments.

Botswana's experience is a different one because they escaped the curse in a weak political and economic environment. Botswana became a resource rich country in the early 1970s. Today, Botswana is the world's leader in diamond production with an estimated yield of 30.4 million carats in 2003 (The Economist 2004). Botswana is among the world's leaders in its per capita natural resource endowment.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

Since discovering diamonds, the country has sustained one of the highest growth rates in the world. It went from being one of the poorest nations in the world in 1965 to a middle income country with per capita GDP of $7,669 USD in 2003 (World Development Indicators 2005). (5) Today, they are free from most foreign aid. They score high on measures of political and institutional stability. In 2003, Botswana's economic freedom ranking came in at 18th overall, and it has consistently been the most economically free sub-Saharan African nation (Gwartney, Lawson et al. 2004). There are hardly any problems of corruption. And, there is widespread satisfaction with the government. These numbers suggest that Botswana--at least in the short-run period of 25 years--has managed to escape the resource curse.

Given the economic logic of the natural resource curse and empirical support behind this idea, Botswana's success is quite surprising. In 1965, few would have predicted that Botswana would be the fastest growing country in the world from 1965-1995. The British government's Report on Economic Survey Mission (1960) said that Botswana was "close to the world's poorest" country, and that it had "dismal economic prospects [that were] based on vague hopes of agriculture, salt, and coal." Botswana was a newly independent, landlocked country in sub-Saharan Africa. It was desolate and sparsely populated. It was beset by the typical problems of poor African countries--famine, illiteracy, lack of adequate portable water, and minimal health facilities and other social amenities. The country had virtually no infrastructure. Over 80 percent of the population was dependent on subsistence farming, and the government did not even have enough tax revenue to balance its budget.

Assuming natural resources are a bane to any developing country, things got worse for Botswana in 1967 when diamonds were discovered. After the discovery of diamonds, De Beers and Botswana's government combined to form the Debswana Mining Company. In 1972, the first diamond mine was opened at Orapa in central Botswana. A few years later, Debswana opened the Lethlakane diamond mine near the Orapa mine. In 1982, the world's richest diamond mine was opened in Jwaneng.

As the diamonds were discovered, an unlikely development occurred: good institutions developed along with increased government revenue from the diamonds. Unlike most resource rich countries, the government did not pursue predatory policies as diamond operations expanded. Rather than attempt to extract revenue as quickly as possible, they pushed Debswana to bring in revenues gradually. As Donald Stephenson of the Bank of Botswana put it,

Botswana's government was worried about its "absorptive capacity." They did not want mineral revenues to come into the government too quickly out of a fear that there would not be enough immediate projects to spend the money on. If the government did not maintain its fiscal constraint, the extra revenue would go to waste and finance white elephant projects. But, in Botswana's case,

This raises the question about the motives and constraints that led the political leaders to refrain from fiscal excess?

Since the day diamonds were first discovered in Botswana, Botswana's leaders have been cautious about diamond revenues. This caution was crucial in helping them avoid the African tragedy. For reasons we discuss below, Botswana's leaders did not turn the new government into an institution for enriching the members of government. Instead, the diamond revenues were used wisely, and today Botswana is a prosperous country-both on paper and in terms of the quality of life it offers its citizens.

THE CASE OF BOTSWANA: THE MAKING OF AN AFRICAN EXCEPTION

Botswana's escape from the natural resource curse is not a typical story. Botswana's high rate of economic development is exceptional for three reasons. First, it is a sub-Saharan African country that has bucked the "African growth tragedy" (Easterly and Levine 1997) by growing at a rate of 6.5 percent since independence, while sub-Saharan Africa has grown at a rate of 0.18 percent over that same period of time (with Botswana included in the average). Second, it is a sub-Saharan African country endowed with a large stock of natural resources. Third, and most importantly, Botswana did not have strong institutions that constrain public predation. Botswana's status as a resource rich, sub-Saharan African country would lead most observers to predict that Botswana's economic prospects were dismal. Yet, Botswana's post-colonial growth has blown its African neighbors and other resource rich countries away.

Botswana's first diamond mine was opened in 1972. With this new mine up and running, Botswana's leaders were now faced with the difficult task of (1) determining how diamond rights should be allocated; and (2) figuring out what share of profits should be kept by De Beers and what share should be given back to Botswana. Rather than go the route of Sierra Leone and nationalize the diamond industry, Botswana's government decided to make Debswana a 15/85 venture between De Beers and Botswana: De Beers would be granted an 85 percent ownership stake in the company and Botswana's government would own the remaining 15 percent. De Beers was given generous exploration and land ownership rights, and Botswana's government was given a say in decision-making.

In the early negotiations, Botswana's government showed a great deal of skill and foresightedness. Officials placed long-run considerations ahead of short-term gains. Even though the government could have used the revenue immediately to finance spending in the present, they instead took a more careful approach to spending. This cautious attitude towards diamond revenues served two important functions. First, it set a good example for policymakers when they renegotiated diamond contracts later on in Botswana's history. Second, and more importantly, once the initial negotiations were settled, there was now a legal precedent that had to be adhered to when future negotiations occurred. Thus, there was some path dependency in Botswana where future negotiators were constrained by the previous agreement.

In subsequent renegotiations between the government and Debswana, terms of trade have become even more beneficial to both parties. The board of directors has been evenly split between De Beers represenatatives and Botswana government appointments. The corporate governance standards strictly require a consensus for projects to be pursued. If De Beers and Botswana directors cannot reach consensus, projects must be abandoned.

While the specific share of revenues is unknown because of the secrecy between De Beers and the government, Botswana's government has been guaranteed a larger overall slice of revenues. (8) In the early 1970s, revenue from Debswana (as a share of Botswana's total gross domestic product) was growing rapidly. In 1972, mining revenue accounted for 11 percent of total GDP. By 1980, it accounted for 23 percent of total GDP. And, in 1989, diamond revenues as a fraction of total GDP peaked at a whopping 51 percent of gross domestic product (Sarraf and Jiwanji 2001, p. 10). Since that time, diamond revenue as a fraction of GDP has stabilized between 30 and 40 percent of total gross domestic product.

But even though the overall level of diamond taxes has increased, De Beers has walked away from the renegotiations with (1) lengthier exploration rights; (2) special legal status on several controversial land rights issues; and (3) a promise that Botswana's government will take a "hands-off" stance when labor disputes arise. Thus, there is a sense that the negotiations have led to Pareto improvements in the mining industry, rather than a zero-sum game. Again, it is crucial that we make relative comparisons when discussing Botswana's history of resource wealth: while the government has been far from perfect in respecting property rights and keeping taxes on minerals low, relative to most resource rich countries where resource industries are nationalized, Botswana's approach is far superior.

The fundamental difference between Botswana and other resource-rich countries in sub-Saharan Africa is that Botswana developed institutions that secure property rights and encourage the adoption of sound economic policy. Botswana was able to turn their natural resources into a blessing rather than a curse.

Botswana's careful policymaking started on Day One when they negotiated a contract with De Beers. The agreement allowed De Beers to manage and explore diamond interests with the promise that they could reap a high level of profits for any discoveries led to increased economic efficiency.

During the early negotiations, President Khama's former tribe, the Bamangwato, stood to benefit greatly from mining revenues. If all of the revenues were to be returned to the tribes with mining interests on them, the Bamangwato tribe would have become the richest and most powerful tribe in Botswana. Khama and the Botswana Democratic Party had a choice very early on about whether mining revenues were a tribal right or a national right. By making them a tribal right, Khama could have lined the pockets of friends and relatives in his own tribe. But doing so would have also meant a great deal of national conflict as the government would be perceived as being captured by the Bamangwato tribe. Understanding this tradeoff, Khama and the BDP decided to address the revenue issue in the BDP election manifesto of 1965, which said that,

Even though Khama's decision did lead to greater centralization of mining activity, it helped him become a legitimate leader and laid firm political foundations for Botswana's subsequent development.

Khama's careful political maneuvering and ability to balance different interest group pressures helped Botswana do well during the early years. Even after Khama's death in 1980, responsible fiscal policy and enlightened leadership remains one of the unique features of Botswana's post-colonial history. Leaders have never lost sight of Khama's original attitudes towards mineral wealth: since the resources were neither infinite nor renewable, Botswana's government could never fall into the trap of counting on mineral wealth as a stable and long term source of revenue.

The role of Botswana's first president, Seretse Khama, should not be minimized. As one interviewee put it, "Khama had this noblesse oblige that was an accident of history." (10) He had a keen sense of why other African nations were struggling, and he steered Botswana in a completely different direction. He also took care to surround himself with educated and knowledgeable advisors, both from within the country, as well as expatriates.

Khama's most important contribution was to coordinate the interests of Botswana's eight major tribes. Immediately following independence, he was the person most responsible for the idea that diamond revenues should go into a national saving fund, rather than go back to individual tribes. This revenue would then be spread out evenly throughout the country in the form of investment, and it would not be used to exclusively benefit particular regions of the country. While this decision was not very popular within his own tribe, the long-run result of Khama's national savings plan was greater legitimacy and less tribal conflict.

Khama's example has been closely followed by subsequent presidents. After Khama, President Masire's policies were largely a continuation of Khama's. This should come as no surprise since Masire was the brilliant economist recommending many of Khama's policies. Botswana's third (and current) president, President Mojae, also has the tribal legitimacy and outstanding grasp of economic theory that both of his predecessors enjoyed. Taken as a whole, the attention that Khama, Masire, and Mojae paid to parsimonious economic policies and the coordination among the different tribes has been crucial for Botswana's economic development. It is very difficult to understand Botswana's performance without this historical framework in mind.

While much of the good management can be attributed to Kahama, the country's National Development Plans (NDPs) helped to reinforce good leadership. The National Development Plans are written every five years. They cannot be amended without unanimous legislative approval. This unanimity constraint has reduced the rent-seeking problems that hamper many resource-rich countries. The fact that the government must work from a budget for six years with a strict unanimity rule that forbids many changes suggests that the NDPs are an effective constraint on governmental excesses. They function as a constitution, which lays out the rules of the game for legislators in Botswana. They limit the set of possibilities and force legislators to engage in less strategic behavior: if spending decisions are to be one-shot for five-year periods of time, legislators had better be sure to get the things most important to them on the bill first.

National Development Plans also draw a clear line between spending that is necessary for development and spending that is wasteful. Projects are only approved if they pass an economic feasibility test and/or a social rate of return test. (11) Unlike many organizations using cost-benefit estimates, Botswana's government was quite conservative in estimating the economic and social benefits of different programs. The National Development Plans prioritized government spending on development projects by those which would bring the greatest rate of return.

In the early years, each of the development plans focused on a particular sector of the economy. The first plan focused on macroeconomic stability, disciplined fiscal policy, and encouraged the development of infrastructure. Much of the infrastructural spending focused on building and paving roads because there were only 25-50 kilometers of paved roads in all of Botswana at the time of independence. Once this basic infrastructure need was addressed, fiscal authorities moved on to other infrastructural concerns like utilities and water. Today, Botswana's government is on NDP 9.

Insisting that government projects be planned and assessed in advance and over the long-run has kept government expenditure from growing as fast as government revenues. NDPs are rarely amended, and it is extremely difficult to gain unanimous support from MPs. As a result, Botswana's government has, historically, been able to maintain balanced budgets. This sound fiscal management has provided an important cushion to help the country endure downturns in the diamond market.

Botswana's frugality and unwillingness to dole out money to pet projects proved to be effective and wise. They have been able to keep spending relatively stable over time, and they have actually maintained budget surpluses for much of their post-colonial history. Even in the early 1980s when revenues from the Jwaneng mine began to flow in, Botswana's spending remained stable. When government revenues leveled off in 1985 at approximately 50 percent of GDP, spending on several large development projects was reduced. The building of new roads slowed, and more emphasis was placed on maintaining the road network at that time. Public utilities, such as water and electricity, were told that they needed to become economically viable and less reliant on the government.

By sticking with spending levels stipulated by the NDPs and by putting away for a rainy day, Botswana has weathered world wide recessions and slumps in diamond demand without having to make drastic changes in public spending. The sound economic policy exercised by Botswana's government was crucial in their escape from the natural resource curse.

WHY DID GOOD POLICY PERSIST?

The good policies adopted and some good luck in early leaders provide a partial explanation for the escape from the natural resource curse. We still must address why the policies were maintained in spite of the incentives to pursue white elephant projects. Along with good policy and wise leadership, the three factors of (1) pre-colonial institutions; (2) timing/luck; and (3) toleration all played a crucial role in Botswana's Botswana's economic and social development. (13)

First, indigenous conditions in the tribal lands of Botswana (Bechuanaland at that time) exhibited many unique features that led to less corruption and a more favorable environment for rule creation. While tribes were autocratic in their decision-making structure, there was toleration for dissent of tribal chiefs. The main medium through which information traveled was the kgotla. Kgotlas were assemblies where adult males would gather with the chief to discuss public issues. The chief was given advice from his people and received criticism for past decisions. Conflict resolution also occurred in this setting, as the chief was responsible for administering law and order. Botswana's tribal experience was like no other when we look around pre-colonial Africa. (14) This tradition of toleration and respect for dissent led to a concern with getting near-unanimous agreement on mineral rights decisions.

A second factor that should not be discounted is the simple fact that timing worked in favor of Botswana. Due to the perceived lack of natural resources in Bechuanaland, British colonial involvement was quite limited during the colonial period. Had Great Britain thought there were more resources there, Botswana's experience with diamonds might have turned out much differently. The terrain inhibited the development of roads into Bechuanaland, which further limited the ability of the British colonizers to influence the affairs of their colonists. As Donald Stephenson of the Bank of Botswana put it,

No cost effective mechanism existed that would allow the British to monitor the events throughout Bechuanaland.

In addition, Botswana did not build their early National Development Plans and constitution with a knowledge of vast diamond reserves. Instead, their constitution was built in an environment where they were trying to design the best rules of the game for a country with "dismal economic prospects." When diamonds were then discovered in the early 1970s, and when Botswana emerged as an extremely resource rich country in the 1980s, there were firm rules in place governing Botswana. The fact that Botswana was not aware of their resource wealth early on led them to establish better institutions than other resource rich countries.

Finally, and perhaps most importantly, Botswana's government had a more positive attitude about expatriates and other non-Batswana (Batswana is the proper term to describe people from Botswana). Part of this toleration probably came from tribal institutions that encouraged toleration of all groups. The Batswana did more than lay out some general principles of toleration that look good on paper. They actually engaged in a number of actions that reflected a genuine commitment to the principles of equal opportunity, non-racism, and tolerance. Quite often, Khama and other legislators would join local expatriates at meetings to take criticism and discuss current issues. As one former Bank of Botswana governor and long-time citizen of Botswana put it in a personal interview:

By keeping expatriates involved in the government, Botswana was able to get valuable information and advice about how to manage the mineral wealth.

Khama's marriage to a white Englishwoman, Ruth Williams, also tells us something about how tolerant Batswana were of minorities. Studying abroad in the 1950s, Khama was banned from returning to Bechunaland to assume his chieftainship. The ban reflected an attempt of easing tensions in South Africa related to the interracial marriage. Khama remained in exile until 1956. At that time, he rescinded his claim to chieftainship and returned to Bechunaland.

SUSTAINABLE GOOD POLICY

In 1999, De Beers and Botswana's government renegotiated the mining agreement. While Botswana's government was promised a larger cut of the overall profits from diamond mines, the Mines and Minerals Act of 1999 guaranteed De Beers more extended ownership rights over mining operations. It also extended property rights over exploratory mining sites from 18 months to three years. This has allowed Debswana to pursue projects with a long-term horizon, knowing that their investments will be taxed at a fairly predictable rate.

Even though Botswana's Ministry of Minerals, Energy and Water Affairs predicts that the diamond mines will not run out in the near future, Botswana's leaders are thinking ahead. According to the Minister of Finance and Development, Baledzi Gaolathe, they are committed to keep the economy growing at a five percent per year rate. (17) The efficient provision of public goods is becoming more difficult because the government still has money to spend,

While diamond mining has played a crucial role in Botswana's economic growth, steady growth has depended on the efficient management of public finances and a monetary policy regime that emphasizes caution and efficiency. Although there are some concerns among business and government officials about the sustainability of Botswana's fiscal austerity, there is widespread agreement that the system of checks and balances is still preventing mismanagement of the fiscal policy. According to one British expatriate, and former employee of Botswana's government:

Given the realities involved in resource rich mining companies, Botswana's economic policies were as good as they could be. They gave De Beers the right incentives by giving them control rights over the mines. They maintained a predictable legal environment. And, they've sided with De Beers when issues of justice have arisen. This has been their policy from the very beginning. When it came to mining policy, taxes were low and predictable. The Mining Act of 1977 gave De Beers lengthy lease periods and maximum flexibility to use their expertise to establish efficient mining in Botswana. While taxes on diamond mining have increased in recent years, the Mining Act of 1999 gave Debswana lengthier exploration rights and greater predictability.

FINAL REMARKS

Botswana's experience illustrates how a poor country with weak institutions can overcome the natural resource curse. Political will from the leadership to pursue sound economic policies can overcome the natural resource curse. This strategy serves as a clear blueprint for other resource-rich countries looking to escape the natural resource curse. Rather than move forward without a map, countries should instead follow Botswana's model and pursue sound economic policies.

The secret to escaping the natural resource curse is really that simple. Countries cursed by natural resources are not as severely constrained as some of the development studies suggest. Any country that follows the Botswana model and pursues the policies listed above is capable of escaping the resource curse. If leaders in resource-rich countries recognize that the curse can be escaped through sound economic policy, the issue then becomes one of how we move from "here" (a resource rich, corrupt, and impoverished country) to "there" (a middle income, stable country like Botswana). That issue is far more country-specific. The important point that must first be resolved, however, and the main point of this paper is that good policy is one of the only paths available for resource-rich countries looking to prosper.

We thank all of the government officials and businessmen who were willing to sit down and talk with us in Botswana. We thank Hagen Maroney, Jack Parson, and John Holm for providing us with useful contact information. Susan Anderson and Andres Marroquin provided excellent research assistance. Finally, we thank the Mercatus Center for essential research support. The authors are responsible for any remaining errors.

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SCOTT A. BEAULIER

Stetson School of Business and Economics

Mercer University

J. ROBERT SUBRICK

Center for the Economic Study of Religion

George Mason University

NOTES

(1.) Sachs and Warner (2001, p. 828) state that the

For a contrary viewpoint on the seriousness and severity of the curse, see David and Wright.

(2.) For more on ethnography, see Fetterman (1989) and Rose (1990).

(3.) While we did conduct interviews in northern cities such as Selebi-Phikwe and Francistown, all interviews used in this paper were from Gaborone, Botswana. Gaborone is Botswana's capital, and it is the largest city in Botswana. The reason why most of our fieldwork was conducted in Gaborone was because it is the commercial and governmental center. Simply put, there is little to see and few people to talk to once one leaves Gaborone.

(4.) Data on exports of natural resources as a share of GDP is taken from Sachs and Warner (1995). Data on rates of growth from 1980-2002 comes from the World Development Indicators, 2004 online database. The 24 countries listed in our figure are all sub-Saharan African countries. Unfortunately, data was not available for Cote d'Ivoire and Lesotho. We used 1980-2002 growth data to see if there were any noticeable changes when countries had 10 years to adjust to natural resource endowments. But, even with a lag between endowments and the growth period under examination, our results were similar to Sachs and Warner's (1995) examination of development from 1970-2002.

(5.) Without adjusting for purchasing power parity, Botswana's GDP per capita in 2003 with constant, 1995 U.S. dollars was $4,343.

(6.) Interview with Donald Stephenson in a conference room at the Bank of Botswana in Gaborone, Botswana on 6/23/04. Mr. Stephenson is a long-time citizen of Botswana, and he was able to talk about current policy and the early years of post-colonial Botswana.

(7.) Interview with Neil Parsons of the University of Botswana in the Staff Lounge on the University of Botswana campus in Gaborone at 9:30 am on June 22, 2004.

(8.) This has been confirmed by the Ministry of Mining, major newspapers in Botswana, and several government officials.

(9.) Originally found in the BDP manifesto, these quotes comes from Leith (2001) and Hazelton (2001).

(10.) Interview with Professor Clark Leith, Economic Consultant to the Minister of Finance and Development Planning and Professor of Economics at the University of Western Ontario. Interview took place in his office on June 24, 2004 at 11 am.

(11.) The projects given first priority must path both tests, but passing at least one test was a necessary condition for projects to be given consideration. Former Bank of Botswana deputy, Derek Hudson, provided information on the NDPs. Interview with Derek Hudson on 21 July 2004, 12:30 pm to 2 pm at Fishmonger Restaurant at the Riverwalk Mall in Gaborone, Botswana.

(12.) Interview with Derek Hudson-21 July 2004, 12:30 pm, Fishmonger Restaurant, Gaborone

(13.) For two recent papers that emphasize the role Botswana's political institutions played in their economic development, see Parsons and Robinson (forthcoming) and Beaulier and Subrick (2006). This paper extends the arguments made in these papers to explain how Botswana's political institutions not only helped the country develop, but also made escaping the resource curse a possibility.

(14.) It should be noted that Ayittey (1992) regards toleration of dissent as the key determinant of Botswana's success. We will not dispute Ayittey's claim, but rather offer an extension of his argument which maintains that, in addition to toleration of dissent, Botswana's ruling elite sent many other signals demonstrating that it was committed to non-predatory rule.

(15.) Interview with Donald Stephenson in a conference room at the Bank of Botswana on June 23, 2004 at 8:30 am in Gaborone, Botswana.

(16.) This individual preferred to remain anonymous. He was interviewed from 12-2 pm on July 26, 2004 at Gaborone Sun & Casino in Gaborone, Botswana.

(17.) Interview with the Honorable Baledzi Gaolathe, Minister of Finance and Development Planning, in his office in Gaborone, Botswana on July 22, 2004 from 12 pm to 1:30 pm.

(18.) Interview with Deputy Director of the Bank of Botswana, Keith Jefferis, 2 July 2004, 11:00 a.m., Bank of Botswana, Gaborone.

(19.) This individual preferred to remain anonymous. He was interviewed from 12-2 pm on July 26, 2004 at Gaborone Sun & Casino in Gaborone, Botswana.
Why are unearned riches [like oil, diamonds, and gold] such a
   curse? Because they impede the development of modern political
   institutions, laws, and bureaucracies. Let us cynically assume that
   any government's chief goal is to give itself greater wealth and
   power. In a country with no resources, for the state to get rich,
   society has to get rich so that the government can then tax this
   wealth. In this sense East Asia was blessed in that it was dirt
   poor. Its regimes had to work hard to create effective government
   because that was the only way to enrich the country and thus the
   state. Governments with treasure in their soil have it easy; they
   are "trust-fund" states. They get fat on revenues from mineral or
   oil sales and don't have to tackle the far more difficult task of
   creating a framework of laws and institutions that generate wealth.


... an increase of one standard deviation [in resource endowments]
   ... was associated with a reduction of average annual growth of
   .39%. Over a 20-year period, this effect would reduce per-capita
   GDP by about 7%, other things constant.


We woke up one morning, and we were told that we are rich (in a
   sense) ... Leadership said right from the very beginning, 'we're
   going to use this money, put it into a fund, and it will be managed
   for development purposes only. And then any recurrent spending
   budgets would have to be self financing.' By taking in revenue
   gradually and by not doing anything unless they were sure they had
   the income first, they managed to avoid these big white elephants
   ... big national airports, monuments, and jumbo jets ... (6)


...the government didn't want all that income...it was De Beers
   that was begging [the government to allow for more rapid growth],
   rather than the Botswana government [begging for more revenue]. (7)


... leaving mineral rights vested in tribal authorities and private
   companies must necessarily result in uneven growth of the country's
   economy, as well as deprive the Central Government of an important
   source of revenue for developing the country ... It will be the
   policy of the BDP Government to negotiate with all parties
   concerning the takeover of the country's mineral rights by the
   Central Government, and subsequently expand the present mining
   operations and step up prospecting activities throughout the
   territory. (9)


They did a lot of good things, at the beginning. One of the most
   famous stories is that to build the roads, from dirt to hardtop,
   roads were ranked according to economic return. One of the roads
   passed by the house of the first president from Palapye to Serowe,
   and they offered him to build it first, and he said 'I'll wait my
   turn', and he did. (12)


... the British were here only to keep Botswana as a sort of buffer
   between the Boers coming up from the south and the Germans and
   Portuguese coming in from the east and the west ... and kind of a
   buffer for their central African colonies--Kenya and Tanzania ...
   they said, 'you guys are running your own business, continue
   running your own business.' (15)


In the early days, we often got together right around the corner
   from here [Grand Palm Hotel and Casino]. Sometimes we would talk
   about ways to help the youth out through tennis programs and
   recreational clubs. Often we would talk about the more pressing
   needs of the nation. Khama frequently attended these meetings, and
   he sat there with us like an equal who was genuinely interested in
   results rather than ideology. (16)


... but it is running out of high productivity public investments.
   The big villages and the towns have pretty much all the
   infrastructure they need, now there is pressure to deliver health
   posts, police stations and council offices in more and more remote
   locations, which is more and more expensive on the per capita
   basis, and generate less and less returns. (18)


Government cut all its expenditures in the ministries last November
   by 18 percent because the economy had gone down ... because
   government income went down, because diamond revenue went down ...
   So there are still these constraints and system within government
   that were slowly set up in the 60s and 70s ... those institutions
   are still there. But they're under threat, as they always have
   been--extravagance, expenditure, over- manning as it is called by
   ministries remains a constant concern. As the system has become
   larger, it's become more complex and difficult to control. (19)


[e]mpirical support for the curse of natural resources is not
   bulletproof, but it is quite strong ... there is virtually no
   overlap in the set of countries that have large natural resource
   endowments--and the countries that have high levels of GDP.
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