Botswana: A Diamond in the Rough

Essay by jj123 October 2007

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1) The Harvard case, “Botswana: A Diamond in the Rough”, describes the exceptional case of Botswana’s sustained economic rise from near absolute poverty to a country with a 10% average annual GDP growth for more than four decades. This case shows that healthy economic gains can be achieved by a mixture of formal institutions and ad hoc substitutes for missing institutions.

When Botswana gained its independence in 1966, the country lacked many of the institutions deemed essential for economic growth by most prosperous developed nations. These absent institutions included a central bank, a national currency, basic administrative structures, market institutions, and the ability to connect to the global markets and apply external tariffs. Yet, Botswana was unique among its neighbors in that it held institutions such as a stable, democratic government supported by a charismatic leader and a constitution which upheld the liberties of a free press, legal transparency, and property rights.

Botswana’s institute of government also lacked the discriminatory practices and internal strife present in many of the neighboring countries.

Botswana was able to supplement its lack of many formal institutions with substitute ad hoc solutions which filled many gaps. The country’s initial lack of its own central bank and national currency was supplemented with the country’s use of the South African Monetary Union until Botswana was able to establish its own currency and central bank in 1976. Similarly, Botswana relied on the South African Customs Union (SACU) for application of import tariffs used to raise tax revenue and protect infant domestic industries.

Gaps left in the country’s infrastructure by weak public funding and an underdeveloped private sector were patched with help from financing and administration given by multinational firms, development institutions, as well as the creation of some of its own formal institutions. The most prominent of these...