Sustainable development in mineral economies: the example of Botswana

Sustainable development in mineral economies: the example of Botswana

Reinvestment of mineral revenues increased growth in Botswana

Mineral wealth often detracts from, rather than enhances, the economic performance of developing countries, a phenomenon known as the “resource curse”. The need to finance basic government expenditure, as well as rent-seeking behaviour by individuals and interest groups, puts pressure on developing country governments to spend mineral revenues rather than reinvest them. Consequently the depletion of minerals is not offset by a compensating increase in other forms of capital.

Botswana, however, has consistently reinvested most of its mineral revenues in accordance with criteria aimed at sustainability and increasing the stock of physical and human capital, and has a long-term framework for setting policy.

This paper reviews Botswana’s economic sustainability over the past 20 years, using environmental accounts to assess the value of mineral assets. It compares Botswana’s performance to the rule that the total amount of capital (including mineral assets and net foreign financial assets) should be maintained at the same level. It also analyses the process by which mineral revenues have been transformed into other forms of wealth and attempts to draw conclusions about the management of mineral resources.

Its findings include:

  • Botswana’s Sustainable Budget Index (SBI), a policy rule requiring that all mineral revenues be reinvested, has worked well in the past but may be less useful for the future
  • not all of public sector investment has been productive, and a better allocation of mineral revenues might improve the sustainability of the economy
  • the SBI was not based on an objective with a well-defined target, such as a given percentage increase in per capita GDP; consequently, there were no criteria for allocation of mineral revenues, or for evaluating a given allocation
  • HIV/AIDS has further complicated the problem of efficiently allocating public investment funds, since it has lowered the productivity of much of the public infrastructure and made higher health spending necessary simply to maintain current human capital.

Its suggestions for policy include:

  • as productivity of public investments in Botswana diminishes, it could consider establishing a permanent fund for distributing mineral revenues directly to citizens
  • use of well-defined targets for policy, in order to optimise allocation of mineral revenues among alternative investments, and between current and future consumption
  • the country’s 6-year National Development Plans address medium-term objectives, but there is a need to move towards longer term planning for investment strategy.