I was taking the World IQ quiz on Bill Gates’ blog. If you have seen Hans Rosling’s TED talk, you can guess the correct answers for most questions by cheating — just choose the most extremely positive outcome! However, one of the questions that threw me off was this one about Botswana:
Botswana’s economy is mostly driven by diamond mining – it accounts for 40 percent of the GDP. Paradoxically, many resource-rich countries fall into what’s called the resource curse:
In the 1970s, when oil was discovered in Venezuela, former Oil Minister and OPEC co-founder Juan Pablo Perez Alfonzo said: “Ten years from now, 20 years from now, you will see, oil will bring us ruin.” His phrase for oil was: “the devil’s excrement.”
Why are resources a curse? In a country blessed with no natural resources (think Japan), the only way forward for the ruling elite is the slow hard work of building public goods, so that GDP builds up, which then feeds back into the power and importance and utility of the ruling elite. When the ruling elite gets their wealth for free, without having to do the hard work of building public goods and thus GDP of the country, the rulers emphasise the wrong issues. That’s how Venezuela ended up with Hugo Chavez.
This is generally true, but there are exceptions, as an IMF study notes:
Economic growth has not been high in some other resource-abundant countries, such as Indonesia, Venezuela, and Nigeria, partly because of inadequate governance. On the otherhand, resource-scarce countries have sometimes attained relatively high economic growth, like the Maldives, which has good governance.
There are other anomalies: While Malaysia has abundant natural resources and good governance, it has low economic growth for this sample period. Albania is a resource-scarce country with poor governance that has somehow achieved marked growth. Therefore, not only governance but also other macroeconomic elements must affect the relationship between natural resource wealth and economic growth.
Some time back, I had noticed that Botswana was one of the surprising places that Google Maps’ Street View was available (look at the southern part of Africa – just north of South Africa).
Street View is available mostly in high and middle income countries – US, Western Europe, Japan, Australia, New Zealand, and parts of Eastern Europe, South America, and South-East Asia.
They got Street View before Argentina, Indonesia, Vietnam, and parts of Russia.
Botswana has achieved this by building sound institutions, and by having good governance, and low corruption. However, the flip side is that the diamond industry employs very few people (only 4 percent of the population), and Botswana has struggled to build other industries.
Being land-locked is a disadvantage for trade. Also it has been said that Botswana might suffer from something called the Dutch disease – once the currency becomes stronger due to growth in one industry’s exports, other industries might suffer because their exports are now more expensive. However, an IMF study found that this was not the case for Botswana.
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