The main issue Botswana has to face is whether their internal policies and external partnerships could be applied to different industries not to depend exclusively on the diamond industry to keep developing in a sustainable way. Another relevant issue is how they will solve their Healthcare situation having the highest HIV/AIDS population in the world. Could the same policies apply for the diamond industry work for these issues? What countries or companies could they partner with in order to attack these threats?
o Several decades of continuous growth in the country’s GDP and population.
o Mining is still Botswana’s first economic sector.
o Social and Personal Services have grown the most in the past 5 years.
o UK is their primary trade relationship.
Botswana has struggled with attracting and managing external investments in industries not related to diamonds and mining. What could be the next diamond to find within Botswana’s territory? Now that literacy levels keep rising due to their reinvesting in education policies could that lead to growth innovation and skilled labor class. HIV / AIDS threatens the value of their skilled growing population, with their life expectancy levels as low as 38.9. If not addressed quickly their constant reinvestments in education would just turn into losses.
De Beers management’s main goal is to continue the partnership with Botswana Mining Company in order to keep control of the diamond market and create higher revenues both for the company as for Botswana’s GDP.
Assess Actions, Alternatives How did the government of Botswana approach the challenge? What role did institutions play? The government of Botswana was really smart and strategic about how they were going to manage the economic growth of the country. The role of institutions was key in order for this growth to benefit Botswana society and not let the “Dutch Deasease ” enrich only the ones in power. Some of the institutions created by Botswana’s government in order to help fill the gaps left by the private sector and compensate for its small local market and financial system, are : 1. The “Public Debt Service Fund (PDSF)” and the “Revenue Stabilization Fund (RSF)”; incharge to channel mineral revenues into long-term loans for local authorities. 2. The “Botswana Housing Corporation”; in charge of using diamond revenues to finance construction projects. 3. The “Botswana Power Corporation” and “Water Utilities Corporation”; who performed the same function for electricity and water. 4. The “Botswana Development Corporation”, the “National Development Bank”, and the “Botswana Enterprise Development”; in charged of using diamond revenues to diversify the economy away from diamonds, creating new industries and entrepreneurs to replace, or at least augment, the mining sector. In order to avoid the “Dutch Desease”, Botswana’s Central Bank managed the currency with care, pursuing an exchange rate policy that maintained the competitiveness of their domestic industry on one hand while mitigating the impact of imported inflation. Botswana also manage to prevent civil wars and / or corruption in big scales, something that almost always happens in countrys that have natural resources and consequently foreign investments ager for them. Economic turmoil and political fragmentation usually tend to appear in countries with vast resources. The governments of Nigeria, Angola, Sierra Leone and Congo are good examples of countries that struggle because of their nation’s vast resources – oil, gas, diamonds-. But in Botswana’s case, diamonds brought prosperity and peace. Acording to Festus Mogae, former Vice President of Botswana and Oxford trained economist: “One of the secrets behind the remarkable social and economic progress achieved by Botswana over the last 36 years has been the respect for democracy and the rule of law”. How did the leader seek to align the stakeholdesr’ various interests? Mineral prices tend to be volatile, which usually desestabilize the economy and as a result lower foreign direct investments that usually seek for safer markets. In order to avoid this, Botswana’s government applied an “expenditure-smoothing policy”, and separate expenditure and revenue by saving part of the revenues, thereby replacing a volatile income stream with a more stable one . What about DeBeers? What do you think of their approach? I think the government was smart to team up with DeBeers. Botswana’s government was aware they did not have enough financial resources to spend and enough know how to extract the diamonds by themselves so the smart and logical thing to do was asked for help. DeBeers had the operating assembly and skilled workers to extract the diamonds without ruined them. The approach of DeBeers was a logical one, since they were investing in an yet unexploited mine, so it was a risky investment. That is why at the beginning they asked for 85% of shares of the mine and the government, since they needed investments and didn’t had enough money or know how decided to grant them the majority shares. What were some tradeoffs they each needed to consider? DeBeers wanted to become owners of the Botswana’s mine. Botswana’s government decided to grant them the mine only if they were able to buy part of the company’s share. That is how, Botswana’s government became part owner of DeBeers, and therefore of all of the mines DeBeers operated and own outside of Botswana. Botswana has been called the Miracle of Africa.” As you think about ‘systems’, what accounts for its success? What have been some possible ‘unintended consequences’ or externalities – positive or negative – of each of their actions?
Botswana’s natural resources played a key role in the country’s economic growth, but its success was due to its good governance and good policies. Botswana’s managed to create a successful economy, poverty was reduced, education increased, and health improved before the HIV/AIDS epidemic. They managed to allocate their money in what the country and its society needed the most, and was able to avoid the Doutch Desease, which in general tends to destroy countrys democracies and lead to chaos and tragedy .