14: Lessons from the Fastest-Growing Nation: Botswana?

GDP in the diamond-rich economy has skyrocketed thanks to free-market principles and prudent management. And its AIDS offensive is showing Africa the way

Quick--name the country that's grown the fastest over the last few decades. It's not any of the four Asian Tigers, though they come close. It's not China--its economy didn't get going until the 1980s. Surely it wouldn't be any country in Africa, where every decade is a lost decade.

Wrong. The country posting the highest gross-domestic-product growth since 1966 is Botswana, a landlocked nation in southern Africa that's two-thirds desert. Its economy has expanded an average of 7% a year since it won independence from Britain that year, according to the World Bank. And it continues to expand--growth is projected at 5% this year--despite a rampant AIDS epidemic that is now the country's biggest challenge. On a continent where virtually every country is worse off than it was at independence, Botswana offers some lessons in economic management for its neighbors.

What accounts for Botswana's sterling achievement? The easy answer would be diamonds, discovered under the desert in 1967. And diamond mining is indeed the keystone of the economy. But odd as it may seem, natural resources like diamonds, gold, or oil are often more of a curse than a blessing. Examples are chronically unstable Venezuela (oil) and the war-torn former Zaire (gold and diamonds). The better answer is that this peaceful democracy has largely stuck to free-market principles, even when its vast diamond wealth could have led it astray. Botswana keeps taxes low. It respects property rights and hasn't nationalized any businesses. It avoids the corruption that easy money encourages, and doesn't waste much money on grandiose air forces or white-elephant industrial projects. Indeed, Botswana is rated Africa's freest economy by the Washington-based Cato Institute in its annual report, Economic Freedom of the World.

Back in 1966, Botswana wasn't a model for anything. It boasted just three-and-a-half miles of paved roads and only three high schools in a country of 550,000 people. The per-capita income was $80 a year. Water was so scarce, and valuable, that the currency would later be named the pula, meaning rain.

Today Botswana is one of Africa's few enclaves of prosperity. Per-capita income has jumped to $6,600. In a continent of weak currencies, the pula is strong, backed by one of the world's highest per-capita reserves ($6.2 billion). Budget surpluses are the norm, and Moody's Investors Service rates Botswana's government bonds higher than Japan's. Botswana's world-class game parks are so free of poachers that they must cull their elephant herds. As a result the government is a leader in the fight to expand legal ivory trading.

Any developing country could have adopted Botswana's sensible policies. But in Africa, most newly independent nations pursued the fashion of the day--socialist or nationalist agendas that called for a strongman at the head of a one-party state, state-owned industries, barriers to foreign investment and trade, and, inevitably, lots of debt. But Botswana was so poor there was nothing to nationalize and no foreign investment to block. And not having any money meant keeping strict controls on government spending. When diamonds were discovered, a culture of prudent management was already in place, so the money didn't end up in Swiss bank accounts. "The Botswana people frown on profligate spending," says Alfred Dube, the nation's permanent representative to the U.N. "The one man every civil servant fears is the auditor-general."

Can Botswana keep it up? That depends on how well it meets two challenges. First, the government has become far too big, critics say, consuming half of the country's GDP, up from just 21% in 1970. So while Botswana may have the freest economy in Africa, it ranks only 38th overall in Cato's study, on a par with famously overregulated France and South Korea. "More and more of the diamond money is going into expanding the government," says Eustace Davie, director of the Johannesburg-based Free Market Foundation. "I'm very concerned that in the long run, Botswana won't be able to avoid the curse-of-resources problem, as more and more politicians, bureaucrats, and businessmen hold out their hands for government money." Ambassador Dube worries, too. "I honestly pray we never succumb to that temptation; if we do, the legacy for our children is gone."

That problem, however, pales in comparison to the catastrophe of AIDS. Fully 38.5% of the country's 15-to-40-year-olds are HIV-positive. AIDS is killing so many young people that the average life expectancy dropped from 65 in 1991 to just 39 last year. But here again, Botswana's culture of prudent management is crucial. It's mounting perhaps the most aggressive counterattack in the developing world, including a massive education campaign and a crash program of upgrading and building clinics and hospitals. Already the infection rate for 15-18-year-olds is starting to decline. The goal is to "get the problem fully under control by 2016," says Dube. As in economics, Botswana's AIDS offensive is a model for Africa. If only the rest of Africa would take note.

By John Koppisch

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