The Curious Case of Botswana: A Lesson for Nepal

Botswana is an anomaly in that it, despite being a landlocked country in sub Saharan Africa, has very high per capita income- even higher than that of prosperous countries in Latin America or Asia. It is the richest country in Sub African Africa per capita with GDP per capita (PPP) of 16,200 US dollars. It will be in my scope to unfold the reasons for its economic prosperity and to understand its implication for Nepal- a land-locked country in South Asia with similar background. Our first task would be to demystify the anomaly by looking at its history.

Botswana benefitted from a pre-colonial institutional inheritance that was not removed during the period of colonial influence (Rodrik, 2003, p. 107). When most of African, South American or South Asian countries were colonized and exploited by European superpowers, Botswana, by a tactful diplomacy of its founding fathers, avoided the indirect rule of the British and furthermore subverted worse consequences that would have befallen their way if Rhodes had succeeded in capturing their land (Robinson & Acemoglu, 2013, pp. 404-413). Nepal was also neither colonized by any economic superpower of the world, nor had major influences from them. The concrete answer for higher economic growth in Botswana, thus, lies in the inclusive political and economic institutions Botswana has adopted since its independence in 1966 -when it was one of the one poorest country in the world.

In the book The Great Escape, Angus Deaton cautions present day rich countries which had developed in their own way under their own political and economic structures to make sure that they do not impede poor countries in emulating what these countries had done to accumulate wealth (Deaton, 2013, pp. 312-324). Erik Reinert would have concurred to Deaton’s argument as he proposes  emulation rather than comparative advantage as the recipe of successful development (Reinert, 2009, p. xxiii). He refers to the quote:

“The nineteenth century saying in the USA was: Do not do as the English tell you to do, do as the English did. Now the saying for [other developing countries] would translate to:  Do not do as the [rich countries or their associates] tell you to do, do as [they] did” (Ibid, p.168).

Botswanan leaders hit “nail on head” in directing their country by associating with a suggestion for developing countries. Botswana exhibited many similarities in political and economic development of England for Botswana achieved rapid political centralization, had its coalitions against an extractive institutions, adopted sound economic policies, and provided private property rights to encourage investment and economic development. The wise and foresighted leadership of Sereste Khama also accounts for a success story of Botswana, for he did not try to enrich himself at the expense of the inclusive institutions and creative destruction from which the country was to benefit (Rodrik, 2003, p. 13). For that matter, “Botswana is particularly lucky that their leader was Sereste Khama and not Siaka Stevens of Sierra Leone, Robert Mugabe of Zimbabwe” (Robinson & Acemoglu, 2013, p. 413)  or Rana Prime Minister of Nepal. Granted that the economic boom in Botswana has been made possible on a foundation of diamond mining, country ,however, would not  have had economic prosperity they witnessed, if it was not for inclusive political institutions and subsequent policies generated from such institutions.  Let us now ponder upon the political history of Nepal.

Nepal was quite an isolated country until 1951. Before 1951, the country was ruled by elitist Rana brothers under Kings, and they consolidated their power by shielding any form of development within the national borders. The theme of the book Elusive Quest to Growth suggests prosperity as a combination of right incentives and intentions. That is to say prosperity happens when there are right intentions in agents responsible for economic growth and when the agents of economic growth provides incentives for its population to engage in activities of economic development.  Government, in this case, needs to have the right intentions and needs to create incentives for its population to instigate the creative destruction such that there is an adaptation of technology and an investment in complex machines and high quality schooling (Easterly, 2001, pp. 285-291).

Ranas feared creative destruction as it could potentially have endangered their political power, they had no intentions for development, and they failed to create incentives for people to have a growth mindset. Rana system was, what Ram Sharan Mahat in his book In Defense of Democracy wrote, “undisguised despotism with absolute total control over all forms of public life” (Mahat, 2005, p. 45) with no or little leeway for aspects of development.   Once Rana were ousted from power in 1951, one form of the extractive institutions was replaced by another and Nepal missed an opportunity to imbed pluralistic elements in politics primarily because copying a model of inclusive institutions without unprecedented critical junctures in the political process is very difficult, and secondarily because Nepal lacked the likes of selfless nationalistic leaders like Botswanan Khama. Back and forth shuffling from a party less system to a democratic regime and “sporadic-ephemeral democratic governments” in the process could not stabilize politics, which catalyzed a civil war and a complete political restructuring from monarchy to federal republic state in 2008 from a liaison of actors of the civil war and disgruntled political parties.

Alongside institutions, a major explanation for lower economy definitely is Nepal’s lack of chief economic resources- substantial gold and diamond mines or a reserve of oil or natural gas- and lack of large manufacturing industry. Nepal’s main economic activity is agriculture but Nepal has no significant net exports of agricultural products. Let us understand the role of- what economist and politicians in Nepal call an optimism in Nepalese economy- hydroelectricity sector in our economy. Investment in hydroelectricity was thwarted by the political instability of the country, and Nepal was able to generate around 800 MW electricity of potential 83,000 MW in a period of a century.

Because of the differences in institutions,  Botswana is the least corrupt country in Africa and its position is even better than some of European countries such as Italy, Portugal or Greece, while Nepal ranks 116^th   on corruption perception index of 2013(Fineey, 2013).  On foundation of good institutions again, Botswana is twenty seventh most free country economically while Nepal is one of least economically free country in the world. Despite being a sparsely populated, agriculturally deficient, dominantly tropical, landlocked country in a very “precarious geopolitical location”, Botswana has been experiencing rapid economic growth by African standards because it possessed the right institutions right after independence and implemented sound policies in place (Rodrik, 2003, p. 113), while Nepal is settled to have one twelfth of GDP and a slower economic growth than that of Botswana due to the lack of sound political and economic institutions.

I will compare Nepal with Kazakhstan, another landlocked but a rich central Asian country, in next post.   

Note:

Extractive institutions are meant to benefit the selected few by extracting from many,while inclusive institutions, on the other hand, distribute power in a pluralistic manner, enact rules of law, and encourage investment in new technologies and skills which are conducive to pluralistic  economic growth.

References:

Deaton, A. (2013). The Great Escape . Princeton and Oxford: Princeton University 

Easterly, W. (2001). The Elusive Quest for Growth. Cambridge and London: The MIT Press.

Fineey, M. (2013, December 3). Botswana Again Ranked as the Least Corrupt Country in Africa. Retrieved from reason.com: http://reason.com/blog/2013/12/03/botswana-again-ranked-as-the-least-corru

Mahat, R. S. (2005). In Defense of Democracy. Kathmandu: Adriot Publishers.

Reinert, E. (2009). How Rich Countries Got Rich and Why Poor Countries Stay Poor. New York: Public Affairs in Paper.

Robinson, A. J., & Acemoglu, D. (2013). Why Nations Fail. New York: Public Affairs in Papers.

Rodrik, D. (2003). In search of Prosperity. Princeton and Oxford: Princeton University Press.