Updated: Dec 29, 2022
Despite the fact that by the end of British colonialism in 1966 Botswana had only 12km of paved roads, the country has now transformed its economy into an international success. Its GNI per capita ($7510 as of 2019) is now on par with BRICS nations such as Brazil. Furthermore, since the 1980s it has experienced an average rate of economic growth of 7.8%. This economic growth has all been underpinned by the natural resource of diamonds that were discovered on a large scale at the beginning of the 19th century. This diamond mining revenue is equivalent to 35.2% of the economy’s 2016/17 GDP. The fortune from diamonds has successfully been redistributed throughout the country’s population and economy.
Botswana has managed to avoid corruption and squandering of its diamond revenues through successive governments forming and adhering to a series of legal regulations that stipulate how the revenues may be invested. Botswana ranks 45th in the world for corruption transparency - a significant achievement.
Such a high ranking confirms that the country has the ability to manage the Government in control, to prevent them from misusing the natural wealth of the country. This has been vital in the country's development. The Government rigorously follows a self-reliance policy of a Sustainable Budget Index (SBI), under which any mineral revenue is used to finance “investment expenditure,” focusing on investment in education and health to support the long-term, sustainable growth of the economy. In addition, the Government leases their land to diamond miners for contracts up to 25 years. This provides the Government with an extended period of revenue from the diamond profits and reduces their exposure to sudden troughs in the market value for diamonds, as companies cannot default on their lengthy leases for the land when demand for diamonds falls.
The main factor leading to Botswana avoiding the resource curse was the fact that the country was a former British colony. Botswana’s colonialism led to extreme poverty throughout the country, and upon the discovery of minerals, the newly independent country immediately decided to best elevate the population out of poverty through the Mine and Mineral Acts of 1967, giving control of mineral rights to the Government. The Government continued to strengthen the even distribution of the mineral's wealth by a policy of centralising the profits of mineral extraction, irrespective of where they were discovered. This removed regional imbalances and tensions emerging between contrasting administrative district
Across the globe, the USA is revered as the most developed economy and the leader of the free world, promising the ‘American dream’ to its population. Yet despite this image, the 25 million population of the Appalachian Mountains in east America have experienced a dramatic decline in standards of living due to the mass closing of coal mines, caused by cheaper natural gas and cheaper foreign coal imports.
The coal states of Kentucky, Alabama and Tennessee, have become riddled with a drug epidemic with many residents turning to drug abuse as a coping mechanism, in order to escape from their challenging lives. As a result, a vicious cycle has emerged where less emphasis is placed on education for the younger generation. They then tend to drop out of education early as they have not experienced the benefits their parents had. For example, only two-thirds of teenagers in Beattyville County in Kentucky graduated from high school so are less likely to gain employment in better-paying jobs, reducing the total economically active proportion of the state and further contributing to increasing poverty.
Both international and national companies view the area as ‘backward’ due to the low
standards in technology, business and health industries and so are deterred from further investing there. For similar reasons, younger generations migrate from the area to seek better job opportunities. This has created a negative multiplier effect known as Myrdal’s Cumulative Causation, where a downward economic cycle in this region has reduced the incentive for businesses and households to spend and invest, further worsening the standard of living.
The origins of this mismanagement of coal stem from the historical impact of the
The Appalachian region is governed by absentee landlords (people or companies that own and rent out the profit-earning property, but do not live within the property’s local economic region). These landlords were historically influential with the local politicians resulting in the land being governed with no participation in the local economy and failing to address problems which arise there - crucial factors in causing the regions to become isolated from the other states. Failing to invest in long-term infrastructure projects led to the wealth derived from coal not being invested for the long-term benefit of the region. Furthermore, weak labour laws enabled multiple private companies operating in the area to play the workforce against each other - driving down wage costs, and consequently, income in the local area plummeted leading to severe inequality of wealth distribution, with the mining companies taking most of the profits. This income inequality has led to 18.8% of the Appalachian region living in poverty with the worse state, Kentucky, having a poverty rate of 25.4%, in comparison with the USA's rate of 15.5%.
However, this poverty gap does not stem from high levels of unemployment, but the fact that household income in the region is significantly less than the average household income of the USA. This is highlighted by the fact that in these regions in 2014, the per capita income was $37,260 compared to the USA income of $46,049. The result has been a handful of coal barons commandeering the region’s wealth of resources, with little interest in reinvesting into the local economy, education and health services.
Private mining companies’ productive capacity ballooned in the early 2000s when Wall Street banks flooded the region to invest in order to meet China’s growing demand for coal. Initially, this benefitted the region’s population as there were secure jobs offering private healthcare. Yet, as China’s super cycle of economic growth slowed down, so did the demand for workers. Investment banks had incurred massive debts on these mining companies and as a result, in 2016, six of the biggest mining companies declared bankruptcy, wiping out 33,500 jobs in the Appalachian region, and billions of dollars were lost in future tax revenue to spend on infrastructure.
The Appalachian region has been cursed by its abundance of coal as it has attracted private, profit-driven mining companies fuelled by Wall Street Banks, fixated on profits and little regard for the socio-environmental scarring of the land. The resources have induced a dependence upon coal and absentee landlords of the area have made no attempt to diversify the local economy. This has exacerbated the impacts of the closing of these mines as there are few other job opportunities in the area which has led to irreversible structural unemployment.
Botswana succeeded in avoiding the Dutch Disease due to the strength of its governance. The Government in Botswana’s capital made sure the profits from diamonds were wisely spent. Furthermore, Botswana managed to avoid the dangers of the sudden appreciation of the country’s currency and it mitigated sudden commodity price drops by placing profits in the Public Service Debt Management Fund and the Revenue Stabilization Fund, which provided the Government with revenue from diamonds over a long-term time period, instead of all at once.