In 1966 Botswana was one of the least developed and poorest nations in the world, its per capita income then just $83. By the turn of the 21st century, Botswana’s per capita GDP, at $7,300, was 15% greater than its powerful neighbour, South Africa. All of that even as, according to president Ian Khama, South Africa has stifled attempts at industrialisation of the neighbouring states.
Just a few kilometres from the new Sir Seretse Khama International Airport in Gaborone is De Beers Global Sightholder Sales, previously known as the Diamond Trading Company (DTC), a sorting, valuation and sales centre handling, in 2014, more than 32-million carats (worth more than $7-billion) of the company’s production for global distribution.
In the vicinity of the desert brown, angular glass and stone block is the national vault, bureau of standards, various diamond cutting and polishing workshops, the bureau of standards, and the national archives.
The DTC was moved in 2012 from London as part of a deal struck around the renewal of the lease on the giant Jwaneng and Orapa mines, the world’s richest, and part and parcel of the government of Botswana’s goal to gain a greater share of downstream benefit from its principal export. Every five weeks, 10 times a year, 86 authorised sightholders, or clients, meet in Botswana to buy parcels of rough diamonds. Additionally, as part of the same beneficiation drive, the government established the Okavango Diamond Trading Company, independently handling three-million carats.
Sorting the diamonds is a complex and technology and labour intensive process. It takes 1,500 employees, including 550 sorters, to sort unpolished goods into 11,344 categories which make up the 500 or so parcels of stones for each sight.
Amid the cranes, traffic jams, new hotels and shiny skyscrapers, and Gaborone is a far cry from 50 years ago when Sir Seretse led the country to independence on 30 September 1966. Then Botswana was one of the least developed and poorest nations in the world, its per capita income then just $83, and the majority of the population dependent on subsistence agriculture. There were fewer than 30,000 people in salaried employment, less than 50 university graduates, low literacy, and scant access to health, sanitation, water, telephones, electricity, public transportation and other services. The country depended on British foreign aid to survive.
By the turn of the 21st century, Botswana’s per capita GDP, at $7,300, was 15% greater than its powerful neighbour South Africa. The reason for the success has centred on a partnership with De Beers to develop its diamond resources. Producing more than a quarter of global diamond production, the sector accounts for 35% of Botswana’s GDP and around 85% of exports.
Botswana’s dependence on diamonds, its best friend since independence, is almost total, a fact not lost on successive governments.
Finding the means to add greater domestic value has been a particular focus of the government of Ian Khama, oldest son of the independence leader, who became President in 2008 at the age of 55. The Botswanan "system" permits the incoming president to take over before the end of their predecessor’s term, allowing them to get their feet under the desk before contesting an election.
A former Defence Force Commander, and still a keen aviator, Khama is expectantly forthright and clear about the foundation of the country’s success.
"It is based on a cultural and traditional commitment to democracy," he says, "and what democracy entails. Unlike some who twist the concept of democracy to suit themselves, we have stuck to these principles in that everything we do should be in the interest of our citizens. This explains our tough stance on corruption - which is all about self-interest and self-promotion. From democracy and good governance," he observes from his modest offices in Gaborone, "stems everything else including the prudent financial management of the economy."
In 1980 Botswana and Mauritius were considered the only two democracies in sub-Saharan Africa. This commitment, he says, "has little to do with colonial legacy, not least since the British capital of the territory was outside, in Mafikeng. Rather it is both cultural and dependent on leadership. Rather than being just a good intention, or rhetoric, the commitments to democracy and good governance are now deeply ingrained."
In 2005, the Brenthurst Foundation helped to assemble a group of international specialists at the invitation of the government of Botswana to help devise a strategy for economic diversification. Out of these preliminary discussions emerged the Botswana Economic Advisory Committee, later the Council, which was to oversee this strategy. This was not the first time that Botswana had attempted to stimulate diversification. The Financial Assistance Policy, terminated in 1999, provided labour and capital subsidies. Very few of the 3,000 operations started under this programme survived. The Citizen Entrepreneurial Development Agency policy that replaced the Financial Assistance Policy offered low interest loans along with mentoring and support programmes.
"When I talk about diversification," reflected the president on the efforts of the BEAC a decade on, "some think of it as diversifying away from minerals. Not so, it is away from diamonds. We need to reach out to other sectors of growth, including other minerals such as copper, iron ore, and uranium, which we must exploit to the full."
He points to tourism as a success for diversification. Botswana has increased slightly its numbers of international visitors from 1.4-million arrivals in 2006 to 1.5-million in 2014. In 2013 travel and tourism directly supported 31,000 jobs, or 4.6% of total employment. The direct contribution of travel and tourism to GDP is estimated at $510-million, or 3.2% of total GDP in 2014.
One of the early BEAC recommendations was to target reducing the costs of doing business to below that of its nearest and greatest competitor - South Africa - to aim to become the "Mauritius of Southern Africa" in the services sector. This would not demand subsidies, but a general improvement of the competitiveness environment by addressing the high value of its currency, the pula, one of the effects of natural resource dependency and inflows, and the costs of banking and telecommunications.
The president pointed in response to a number of tensions that constantly have to be managed - the exchange rate, for one, in balancing the need to keep inflation within a "3 to 6% bracket" yet low enough to ensure export competitiveness with its major trading partners. He also highlights the difficult choice about what to do with a national airline, another BEAC hot topic, whether and how to prune costs versus use it as a strategic asset to bring in tourists and businesspeople. Another early but stillborn recommendation focused on positioning the airport as a regional cargo hub along the lines of Memphis or Hong Kong.
Government has replaced the BEAC now with a joint government-private sector forum to get things done. "It did good work, especially on strategic issues, but to make such bodies effective, you need to have all ministers and their Permanent Secretaries present."
Still, the move into the upstream diamond beneficiation business has created more than 2,000 jobs. There are limits to this expansion, not least the comparative global costs of cutting and polishing: at least $45 per carat in Botswana versus $10 in India. (South Africa is however three times the minimum Botswanan figure, encouraging the relocation of once SA-based businesses to its neighbour.) While the move of diamond trading from the UK has resulted in the relocation of 80 families to Gaborone, boosting local housing and other services, the relocation of the DTC has not yet led to the sort of business traveller boom imagined, not least as sightholders often prefer to "pop into" Botswana for a day from Johannesburg.
There are other challenges, notes President Khama, with diversification into manufacturing. "When you sit next to a neighbour with an economy the size of South Africa, who are extremely active in trying to attract FDI and who are calling themselves a regional gateway, it is more difficult. I find that labelling personally unfortunate, as it says that we in the region, around South Africa, should not be manufacturers, but only the market. This is not the only way that South Africa has stifled attempts at industrialisation of the neighbouring states. They have also put in place trade measures to do so too. Yet they have a bigger market, more developed infrastructure, seaports and airports, and other big advantages. Still, we have tried to sell ourselves as being at the centre," he stresses, "of the southern African region, which is why we have invested in logistics."
On specific failures, Khama singles out electricity. "We used to rely on imports from Eskom in South Africa. When it became clear that Eskom could not adequately supply to its own market, and this made us vulnerable, we had to bring forward our plans to be energy self-sufficient by 2012. But we were let down by the contractor, as a result of which we are still now running helter-skelter to be not only self-sufficient but an energy exporter in two to three years’ time."
When viewed from the prism of East Asia’s success, it seems that more than anything success at diversification requires a laser focus on growth and development. What has he learnt about this task for leadership?
"In my case," smiles the president from behind a desk and next to shelves cluttered with martial bric-a-brac, "I have no doubt that the military background had a big influence, especially on the nature of decision-making and man-management. It was a very big plus in my life to have gone through the military. It prepares you for anything in life, and it’s something that I will retain and won’t let go of.
"In part," he adds, "it’s also about what sort of character you are. I have pushed the issue of dignity and of showing compassion and care for fellow citizens during my time, especially those disadvantaged. Of course, your parents also have an influence. I was fortunate in having a father in this job too, and a mother concerned with charitable causes. These things together have helped me to deal with challenges."
Here Botswana’s poverty had an advantage. "Always starting from a bad situation you can make good." But he concedes that there is a problem of apathy among his citizens. The guarantee of diamond income demotivates business to "get out there".
"Occasionally we get offered opportunities but we are laid-back in leaping at them because of having diamonds. Also, there is a dependency syndrome on government since we were once so poor and have done a lot through social interventions. Today many people probably get assistance who should be looking after themselves - this is a trend. The question they have always is "What is government going to do for me?"
"Maybe what we have achieved through diamond revenues has made us complacent. But we have to remember," he checks, "that diamonds are not forever."
Published:1 August 2016
This article was first published by Brenthurst Foundation.