Wednesday, January 24, 2007

The Botswana model

Here's an interesting piece about the Botswana success story and its replicability [link via Brad DeLong]. It summarizes a speech given by Festus Mogae, President of Botswana, at the Center for Global Development:

1. How did Botswana avoid 'resource curse' and use its diamond revenue to spark sustained growth?

The president noted that his predecessor, Seretse Khama, transferred rights to subsoil diamonds away from Khama’s own tribe -- the Bangwato -- to the state. Crucially, Khama did this before the diamond revenues began to flood in; it is much easier to redistribute hypothetical income than actual income. President Mogae also mentioned the skill of the team that negotiated with De Beers, plus their prescient decision to reinvest some of their royalty revenue back into De Beers -- thus turning Botswana's diamonds into a triple payday of royalties (50%), corporate taxes, and dividends. Economists have noted the importance of centuries-old political institutions in shaping the transparent governance that ensures those revenues really do end up in the Treasury. Both this and the president's above point about timing, unfortunately, call into question the simple replicability of a "Botswana model" elsewhere. The president said little to allay such doubts.